Mar-May '06

For four years after it was first ordered in 2002 to pay a $27.5 million penalty for intentionally selling defective batteries, Exide Illinois made not a single payment.

On Wednesday, however, a federal judge ordered the company anew to pay the penalty, though under a deal between Exide and prosecutors, it will have until 2011 to complete the payment.

Exide pleaded guilty to wire fraud in federal court in East St. Louis in 2001, admitting that it had intentionally sold defective batteries to Sears, Roebuck and Co. for resale under the "DieHard" brand. In February 2002, a federal judge ordered Exide to pay a $27.5 million fine.

Senior Exide officials, including former Chief Executive Arthur Hawkins of parent company Exide Corp., pleaded guilty to fraud and other charges. Hawkins got a 10-year prison sentence.

In April 2002, Exide Illinois and its parent filed for bankruptcy protection from creditors. After the company emerged from bankruptcy in April 2004 under the name Exide Technologies, it claimed that the bankruptcy had canceled the penalty, prosecutors said in court filings.

Last November, prosecutors from the U.S. attorney's office in Fairview Heights filed documents urging the court to consider whether Exide should be held in contempt of court for failing to pay the fine.

The prosecutors said in court filings that at the time of Exide Illinois' sentencing, the vice president and general counsel of Exide Corp. expressed no doubts about the ability of Exide Corp. to guarantee the payment, even though both companies filed bankruptcy less than two months later.

The original payment plan gave Exide Illinois five years to pay the whole amount. By the time the company filed bankruptcy, it still held $27.5 million in reserve to pay the fine.

U.S. Attorney Ron Tenpas' office argued that federal law prevents a company from avoiding a criminal penalty through bankruptcy. Exide responded to the filings by seeking extensions, and ultimately negotiations resulted in the agreement approved Wednesday by Judge David Herndon.

When the judge signed the new order Wednesday, Exide Illinois representatives made their first payment, $250,000.

Officials at Exide Technologies, based in Alpharetta, Ga., did not return calls seeking comment on why it did not pay the fine previously.

Exide Technologies, which produces and recycles lead-acid batteries, has operations in 89 countries. Since leaving bankruptcy, its publicly traded shares have slid from a high of $24.50 to hover around $5 recently. They closed at $4.47 Wednesday.

In Chicago, New Pay Law Is Considered for Big Stores
By Gretchen Ruethling – The New York Times
May 28, 2006

Chicago may become the first city in the nation to require "big box" retailers like Wal-Mart or Home Depot to pay employees a "living wage" of at least $10 an hour plus $3 an hour in benefits.

So far, 33 of 50 City Council members have signed on to the proposed ordinance — more than enough to pass it, perhaps as soon as next month.

The bill would affect only stores that have at least 75,000 square feet and are operated by companies with at least $1 billion in annual sales, allowing smaller retailers to continue with the state minimum wage of $6.50 an hour.

"This is an effort to try to preserve the middle class," said Joe Moore, an alderman from the North Side who sponsored the measure. Mr. Moore called the notion that it would drive retailers out of the city "hogwash."

But others say the measure will scare off employers.

"Don't let me be the experiment," said Emma Mitts, the alderwoman in the poor and mainly African-American neighborhood of Austin on the West Side, where the city's first Wal-Mart is scheduled to open this year. "Not at a time when my community needs these jobs so badly."

Whether the city has the power to make such demands of certain retailers while exempting others is an open question. The proposal has yet to be reviewed by lawyers, a spokeswoman for the city said.

David Vite, president and chief executive of the Illinois Retail Merchants Association, said that he thought the state would block such an ordinance and that it seemed unconstitutional because it would discriminate against some businesses. "To suggest that someone who is a janitor in a retail store should get paid more than a janitor at a bank doesn't make any sense," Mr. Vite said.

But Jennifer Sung, a lawyer with the Brennan Center for Justice at New York University chool of Law, which helped draft the proposal, said the measure would withstand challenges.

Ms. Sung said courts had ruled that distinctions could be made among industries if there was a rational basis for doing so. She also said that Illinois had granted local governments broad powers to pass regulations to promote a city's health and welfare.

Similar legislation has been introduced in Washington, D.C., and discussed in New Jersey. Lawmakers in Maryland; Suffolk County, N.Y.; and New York City have passed laws requiring certain large employers to provide health care benefits for workers, but none of those laws have a wage component.

If the proposal in Chicago passes, it could mean wage increases for more than 9,000 of the 16,000 or so workers at about 35 big-box stores, according to a study released last year by the Center for Urban Economic Development of the University of Illinois at Chicago.

The proposal in Chicago comes as such stores have opened in poor neighborhoods.

"This ordinance targets the larger retailers who have, over the last probably five years, begun to make some inroads to the inner cities," said the Rev. Dwight Gunn, a pastor at Heritage International Christian Church. "It would continue to push business and development away from the city."

Mr. Gunn said the ordinance would hinder development in needy neighborhoods on the South and West Sides. The North Side's mostly white neighborhoods, meanwhile, would be less affected, Mr. Gunn said, because they have many major retailers.

"The aldermen, I think, have a very difficult choice in the sense that none of them want to be seen as anticommunity, antiworker," Mr. Gunn said.

Over the next two years, Wal-Mart plans to build more than 50 stores nationwide in city neighborhoods in need of development; the Chicago store scheduled to open in September is the first. "We have made a pledge to come to urban areas where communities have been ignored and underserved," said John Bisio, a spokesman for Wal-Mart. He said such a wage law would not affect plans for the Austin store.

Some 9,000 people have applied for about 400 jobs at the store in the Austin neighborhood, Mr. Bisio said, even though the opening is more than three months away.

Life after Sears: Meads lands on feet
By Sandra Guy – Chicago Sun-Times
May 26, 2006

Former Sears, Roebuck and Co. executives are landing on their feet elsewhere in retailing.

The latest move involves Mindy Meads, former president and CEO of Sears' Lands' End division, who will start a new job Aug. 4 as president and CEO of Victoria's Secret's catalog and online businesses.

Meads will oversee marketing, strategy development and public relations for the catalog and e-commerce operations, said a spokeswoman for Limited Brands, which owns Victoria's Secret. The Victoria's Secret Internet and e-commerce operations are a $1.12 billion business, according to Women's Wear Daily magazine.

Meads' hiring was part of an overhaul of Victoria's Secret's management team announced Wednesday.

Meanwhile, Luis Padilla, who earned a stellar reputation at Marshall Field & Co. and Target before he was hired at Sears as the company's top merchandiser, is working as part-time CEO at Kuhlman Co., a Minneapolis-based retailer of men's and women's European-style suits and separates. Kuhlman operates five stores in upscale neighborhoods in Chicago.

"It's an opportunity to add value to a small company," Padilla said Thursday. Kuhlman employs 275 and posted a market capitalization of $23 million.

"I like the concept and aesthetic principle of the brand," said Padilla, who still lives in Chicago and has other investment interests.

Other moves include:

*Glenn Richter, former Sears chief financial officer, starts next week as chief administrative officer at Nuveen Investments.

*Gwen Manto, Sears' former chief apparel executive, works as chief merchandising officer at Dick's Sporting Goods.

*Sara LaPorta, former senior vice president of strategy at Sears, is working as an outside consultant to Walgreen Co.

Former Wal-Mart Exec Faces Fraud Sentence Aug. 11
Dow Jones Newswires
May 25, 2006

NEW YORK (AP)--A federal judge has set a sentencing hearing Aug. 11 for Thomas Coughlin, the former No. 2 executive at Wal-Mart Stores Inc. (WMT), who pleaded guilty in January to fraud and tax charges for stealing money, gift cards and merchandise from the world's largest retailer.

Coughlin, 57, faces a maximum of 28 years in prison after pleading guilty to five counts of wire fraud and one count of filing a false tax return. He also could be fined $1.35 million.

U.S. District Judge Robert Dawson, who accepted Coughlin's guilty plea in January, set the sentencing hearing for 10 a.m. on Aug. 11 in his courtroom in Fort Smith, Ark.

Prosecutors have recommended a sentence but Dawson sealed the plea agreement pending a pre-sentencing report.

Wal-Mart referred Coughlin to federal prosecutors after discovering Coughlin allegedly embezzled money from the company and used expense vouchers to buy products as varied as snakeskin boots, hunting trips and Bloody Mary mix. Wal-Mart estimated losses at up to $500,000.

Wal-Mart Chief Executive Lee Scott has called the ordeal "an embarrassment" for himself and for the company.

Coughlin was a protege of company founder Sam Walton. As vice chairman, he received a base salary of $1.03 million in his final year with the company. He received more than $3 million in bonuses and other income in the same period and held about $20 million in Wal-Mart stock, according to Securities and Exchange Commission filings.

In documents filed with the court, Coughlin specifically admitted defrauding the company to pay for the care of his hunting dogs, lease a private hunting area, upgrade his pickup truck, buy liquor and a cooler, and receive $3,100 in cash.

Coughlin retired as Wal-Mart vice chairman last year and gave up his spot on the company board in March after Wal-Mart referred him to prosecutors. The matter was taken up by a grand jury in Fort Smith.

In November, former Coughlin subordinate Robert E. Hey Jr. agreed to plead guilty to wire fraud and testify for the government in return for parole instead of prison time.

Besides giving the case to federal prosecutors, Bentonville, Ark.-based Wal-Mart filed suit last year to end Coughlin's multimillion-dollar retirement agreement and to recover money.

However, that lawsuit was dismissed by an Arkansas judge who said both sides had signed a pledge as part of Coughlin's retirement deal not to pursue any claims against each other for any reasons. Wal-Mart has appealed the dismissal of its lawsuit to the Arkansas Supreme Court.

No mention was made in Coughlin's public filings with the court of his earlier claim that he used money obtained from Wal-Mart to pay for anti-union activism. Wal-Mart has said there was no such project.

Target Transfers More Health Costs To Its Employees
By Ann Zimmerman – The Wall Street Journal
May 20, 2006

Target Corp. has changed its health-care plan so that employees are responsible for more of the costs and it is considering entirely eliminating its traditional health insurance.

The Minneapolis-based retailer last month introduced a health-savings account and a health-reimbursement account for its more than 300,000 workers. The changes, first reported in the Minneapolis Star-Tribune (see correction below), have provoked worries among workers that Target is shifting more of the financial burden onto them to combat rising health-care costs.

Wal-Mart Stores Inc., Target's main rival, has taken fire for a bare-bones health plan that requires participating employees to pick up 30% of costs. But Wal-Mart has been sweetening its benefits to make them more attractive for its increasing number of part-time workers.

The shifts in Target's health-care plan, implemented last month, underscore that reining in health-care costs is a big concern for all companies. According to the Kaiser Family Foundation, health-care premiums paid by workers and their employers jumped 73% between 2000 and 2005.

In their search for ways to save money, many companies have turned to various forms of health-savings accounts, in which workers and companies set aside money to pay for medical care. Because the workers are paying the bills directly, the hope is that they will make fewer unnecessary doctor visits and will shop for the best rates.

Target spokeswoman Lena Michaud said the retailer told its workers that its traditional health plan might be discontinued. But she said a final decision hasn't been made.

"This is a long-term strategy that will help both us and team members [employees] save money by encouraging them to take greater control over their health-care spending," Ms. Michaud said.

Under its new plans, Target annually will contribute $400 for individual workers and $800 for families. Monthly premiums will drop to as little as $20 for individuals. But deductibles will be much higher than Target's traditional plan: as high as $5,000.

The other alternative is the health-reimbursement account, which is similar to health-savings accounts, except the employer funds them and they aren't portable. The premiums paid by the workers are higher than the health-savings accounts, but the deductibles are lower.

"These plans are great if you are healthy, wealthy or young," says Bernie Hesse, a Minnesota-based organizer for the United Food and Commercial Workers, which is trying to organize Target.

Corrections & Amplifications:

The Minneapolis/St. Paul Business Journal first reported that Target Corp. was planning to introduce health savings accounts and was considering entirely eliminating its traditional health insurance. This article incorrectly credited the Minneapolis Star-Tribune with reporting the news first.

Sears to close all nine Michigan hardware stores
By Dorothy Bourdet - Detroit News
May 26, 2006

Stiff competition from big-box retailers has squeezed sales,
forcing closure of 20 across U.S.

Sears Holdings Corp. is shuttering all nine Sears Hardware stores in Michigan because of lackluster sales.

The closings come as Sears Holdings, the nation's No. 3 retailer, is being squeezed by competition from big-box retailers, including Target, Wal-Mart and The Home Depot.

"These stores were identified as under-performing stores," said Larry Costello, a spokesman for Sears Holdings, which was created by last year's merger of Kmart and Sears, Roebuck and Co. "As the hardware stores close, the Sears and Kmart stores in the Detroit area will continue to service customer needs."

Eight of the stores are in Metro Detroit; the ninth is in Fenton. Liquidation sales are under way, with all of the stores expected to close by the end of June.

Costello declined to say how many workers will be affected. "We are actively working to help those associates who have been impacted by the announcement to find positions at Sears or Kmart stores in the area."

Eleven Sears Hardware stores outside of Michigan also will close, leaving 119 hardware stores nationwide.

"It is clear that Sears/Kmart is trying to define themselves as a company, and hardware does not fit into their over all mix," said Kenneth Dalto, retail analyst and president of Farmington Hills-based Kenneth J. Dalto & Associates.

"Hardware is not just an area they are going to compete in because it is dominated now by just one or two (companies)."

Sears Hardware, which sells everything from bathroom cleaners to grills and patio furniture, joins a parade of retailers that have left Michigan in recent years, including Mervyn's and Frank's Nursery.

The Sears Hardware closings come as Michigan retailers' sales and short-term forecasts showed little change in April from March's lusterless numbers, despite growth in U.S. retail sales.

April's Michigan Retail Index, which is based on a survey of state merchants, found 39 percent of retailers in the state increased sales in April, compared with 36 percent in March, according to the Michigan Retailers Association.

"Not even a late Easter and some warm April weather could push up Michigan retailers' sales," Larry Meyer, the association's chairman and CEO, said in a statement. "Higher unemployment, higher gas prices and Michigan's struggling economy continued to hurt most retailers."

But Michigan's sour economy is only partly to blame for retailers' woes here, said Gary Kulesza, managing director at Southfield-based BBK Ltd., who works with businesses in crisis.

"There's no question that the automotive restructuring will put a strain on Michigan," Kulesza said. "(But) Michigan is not falling off the map. I think that Sears and Frank's Nursery issues are as much about how the firms are managed and where they're trying to position themselves."

Taylor resident Laurie Bennett was disappointed to hear about the closings Thursday as she picked up plumbing supplies from Taylor Sears Hardware, where bright red and yellow signs blared "Everything must go," from the store windows.

"I wish they wouldn't close down," she said. "I like this store -- I like the location, (and) the help is usually pretty good."

Officials at Hoffman Estates, Ill.-based Sears Holdings said six Metro Detroit Sears stores will be expanded to add some of the hardware items the closing stores carried. Information on which stores were slated for expansion was not immediately available.

Phone Tax Laid to Rest at Age 108
By Ken Belson - The New York Times
May 26, 2006

Bowing to changes in technology and pressure from taxpayers and phone companies, the Treasury Department said yesterday that it would scrap the 108-year-old federal excise tax on long-distance phone calls. The move will bring consumers and businesses about $15 billion in refunds on next year's tax returns.

The decision, which applies to cellphones and Internet phone services and some landlines, follows a series of court reversals for the government. Large businesses had successfully sued the Internal Revenue Service to recoup the taxes they paid. Phone companies also wanted the tax abolished to relieve them of having to collect it.

Originally a luxury tax to help pay for the Spanish-American War, the 3 percent surcharge was calculated based on the length of the call and the distance of the connection. But as unlimited long-distance calling plans became commonplace, and the tax was applied to a flat monthly fee, some taxpayers argued that the tax no longer applied to them because the duration and distance of a call were irrelevant.

Though the tax will still be imposed on local phone service, the government will reimburse three years' worth of taxes on long-distance calls, including any plans that combine local and long-distance calling. Consumers, who pay about 40 percent of the taxes collected, typically pay about $18 a year in excise taxes if they have a long-distance service and a cellphone.

They will be able to file for a refund on their 2006 federal income tax returns.

"It's time to disconnect this tax and put it on the permanent do-not-call list," Treasury Secretary John W. Snow said. Yesterday's decision, he added, "marks the beginning of the end of an outdated, antiquated tax that has survived a century beyond its original purpose, and by now should have been ancient history."

The abolition of the tax, effective July 31, will cost the Treasury $5 billion annually in lost revenues in the next few years.

With budget deficits soaring, the Treasury had been slow to scrap the tax. But several federal courts ruled in recent years that it was no longer applicable to customers with unlimited long-distance plans. The Internal Revenue Service has refunded hundreds of thousands of dollars in taxes to companies including OfficeMax and the American Bankers Insurance Group based on the court decisions.

While the courts said some businesses should get refunds, Congress had not repealed the tax, so the I.R.S. was compelled to continue collecting it. This created a peculiar dynamic in which taxpayers who won refunds still had to pay the tax in subsequent years and then reapply for another refund.

Companies in districts where courts had ruled against the tax could get refunds, while companies elsewhere still had to pay it.

Now, the hundreds of companies that applied for refunds before yesterday's decision will not have their claims processed, according to some tax lawyers. That means companies that could have won refunds through the courts might have to wait far longer for their refunds to arrive after they file their income tax returns.

"The Treasury wants to standardize the process, but it's grotesquely unfair to the people who got this started," said Hank Levine, a partner at Levine, Blaszak, Block & Boothby, a Washington law firm that has represented business plaintiffs in most of the successful cases to date. "The I.R.S. didn't want to give up the money, and now that they have been forced to, they are doing so grudgingly."

Congress was close to abolishing the tax in 2000, but it was attached to a larger tax bill that President Bill Clinton vetoed. Congressmen are again calling for its repeal.

Senators Charles E. Grassley , Republican of Iowa, and Max Baucus, Democrat of Montana, asked the Senate Finance Committee yesterday to look also at eliminating the tax on local phone service.

For now, the Treasury said that consumers and businesses would get refunds, including interest, on their 2006 income tax returns filed in 2007. The I.R.S. has not decided the size of the standard refund for individuals. But taxpayers who use a lot of phone services will be able to apply for a larger refund if they can document how much they paid in excise taxes.

The average household spends $10 a month on long-distance calls and $41 a month on wireless service, or $612 a year, according to figures from the Federal Communications Commission. Since those services are taxed at 3 percent, the typical household pays $18.36 a year in federal excise taxes, or $55 over three years.

Consumers, of course, can still expect plenty of taxes and fees on their phone bills. Phone companies are obligated to collect an array of state and local taxes as well as fees that pay for emergency response groups and public services provided by the Universal Service Fund and others.

Phone companies have opposed some of these taxes because of the expense of collecting them, and because it drives up the cost of their services, making them less attractive to consumers.

" Wireless consumers can now turn their attention and efforts to repealing discriminatory wireless taxes on the state and local level," said Steve Largent, the president of CTIA, a trade group that represents cellular companies.

Mr. Largent said 17 percent of the typical monthly cellular bill was made up of taxes and fees.

Carriers, however, are partly to blame for that burden because they charge their customers a range of discretionary fees to recoup their business costs. For instance, some customers are charged "property tax allotment" fees that are meant to pay for a company's real estate taxes. Other companies charge "carrier cost recovery fees" to pay for the administrative costs of collecting taxes.

These fees generate billions of dollars in revenue for the companies.

That is a far cry from 1898, when the tax was first levied and there were 681,000 phone subscribers in the United States, according to James Katz, a telecommunications historian at Rutgers University. Though relatively small in numbers, those subscribers paid a considerable amount in taxes to help finance the government's battle against Spain.

The annual basic charge for a home phone in the 1890's was about $100, or more than $2,200 in today's dollars. A three-minute call from New York to Chicago in 1902 cost $5.45 — about $120 today.

Lampert, Griffin make list of highest paid hedge fund mgrs
By Kate Ryan – Crain’s Chicago Business Online
May 26, 2006

(Crain’s) — After earning more than $1 billion in 2004, Sears Holdings Corp. investor and hedge fund manager Edward Lampert took a 50% pay cut from his fund in 2005.

Mr. Lampert, the activist investor who is now chairman of Sears, brought home $425 million from his Greenwich, Connecticut–based ESL Investments hedge fund last year. That made him the sixth highest-paid hedge fund manager in the world, according to rankings by Institutional Investor’s Alpha magazine (he topped the list in 2004).

Mr. Lampert’s pay fell because his $15 billion fund gained only 9% in 2005, according to the magazine. The merged Sears-Kmart company accounts for two-thirds of the fund’s $11 billion equity portfolio, the magazine reported. Mr. Lampert’s fund is Sears’ largest shareholder, with a 41% stake.

Chicago’s Kenneth Griffin appeared on the list at No. 13, with take-home pay of $210 million last year. Mr. Griffin’s Citadel Investment Group LLC has $13 billion in assets under management.

Hedge fund managers generally collect management fees and keep a portion of profits. James Simons of East Setauket, N.Y.-based Renaissance Technologies Corp. topped the list with take-home pay of $1.5 billion.

Major Los Angeles Project Will Have to Wait Longer
By Michelle Keller, Staff Writer – Los Angeles Times
May 22, 2006

A new owner is expected to be sought to put in housing and retail at the landmark Sears site.

The planned sale of a major redevelopment project in Boyle Heights is raising concerns that the affordable housing and retail outlets that the area needs may be delayed.

Santa Monica-based real estate firm MJW Investments is expected to formally announce today that it is soliciting proposals from buyers to purchase its 23-acre site at Olympic Boulevard and Soto Street.

The site, home of a long-shuttered Sears, Roebuck & Co. distribution center, is a landmark in East Los Angeles and one of the city's largest redevelopment projects in recent years.

The project's proposed addition of condominiums, apartments, stores, offices and restaurants would provide an economic spark for the area, possibly making it less affordable for the community's lower-income residents. As such, the project could add to a growing problem facing many lower-income communities whose real estate prices have surged with the five-year housing boom — in some cases rising faster than in more-affluent areas.

The mixed-use project would have taken five to seven years to complete even under the current owner.

But now the process of finding a buyer and completing the transaction could delay the redevelopment even further, community leaders say. They also express concern that a new owner may not have the community's best interests in mind.

"We now have to expedite the process," said Los Angeles City Councilman Jose Huizar, whose district includes Boyle Heights. "The community's been waiting too long."

Huizar and Mayor Antonio Villaraigosa expressed their commitment to the effort.

"The mayor believes this is an important signature site and he is very committed to making sure that it is redeveloped in an appropriate way," said Diana Rubio, a spokeswoman for the mayor's office. "The biggest interest is in retail because the neighborhood is so underserved by retail."

MJW President Mark Weinstein said the company had been flooded with calls from potential buyers about the development, indicating a great amount of interest. He said MJW would work with the new development firm to ensure that the initial vision stayed the same.

"We're open-minded to how we'll be involved," he said.

Weinstein said he didn't have a minimum asking price and would wait to see the bids.

The new developer will have to determine which structures at the site to convert to new uses and which to tear down and replace.

With more than 1 million people living within a five-mile radius of the site, the need for more retail space and housing units continues to be pressing, Huizar said.

The site also is of historical value to the Boyle Heights community. The nine-story, 1.9-million-square-foot Sears building has long been an icon for Angelenos, said Ken Bernstein of the Los Angeles Conservancy. The distribution center once served as an important mail-order fulfillment center for the company.

"It's clearly one of the great visual icons of the entire Eastside of Los Angeles," Bernstein said. "Its tower is a very visible beacon from the jumble of freeways that really bisect Boyle Heights."

MJW's Weinstein said the company would ease the transition to new owners by providing information from the many community meetings in which the firm had participated.

His firm purchased the property in 2004, envisioning a $450-million project with housing and 660,000 square feet of stores, offices and restaurants. After paying $40 million for the property and investing an additional $10 million in the project, the firm decided to sell the property because it did not align with its business plan of focusing on short-term ventures, Weinstein said.

When it was first slated, the MJW project met with resistance from community leaders concerned that the new housing would drive up prices in the surrounding area. But meetings including developers, city planners and residents helped assuage fears that the area would succumb to gentrification.

As the property is put up for sale, residents and community activists fear that new buyers may not be as amenable to input from nearby stakeholders.

"We know that MJW was willing to come to the table and participate in community meetings that really, truly engaged people," said Maria Cabildo, executive director of East Los Angeles Community Corp., a nonprofit community development organization. "I have concerns about who else might be interested in this property."

Gaining the community's trust again may be a challenge for the next investor, said Frank Villalobos, president of Barrio Planners, an architecture firm in East Los Angeles.

"Is the community going to believe the next guys that come around with their carpetbags?" Villalobos said.

The real estate market has changed since MJW bought the property. With more than 400 affordable-housing units lost to housing project renovations, the extension of County-USC Medical Center and the Hollenbeck police station replacement, finding an affordable place to live in Boyle Heights has become increasingly difficult, community leaders say.

"We're really on the verge of changing as a community in a very dramatic way," Cabildo said. "We have families coming in on a regular basis that are facing huge rent increases — those things weren't happening when the Sears project first came up."

The median price of a single-family home in Boyle Heights hit $395,000 in April, up 27.4% from the same month last year, according to DataQuick Information Systems, a La Jolla-based research firm. By contrast, the median price for single-family homes and condominiums in all of Los Angeles County was up 13.6%.

Cabildo said she was also concerned that the new developers might consult primarily with homeowners — "an anomaly on the Eastside" — and could forget renters.

"People aren't used to consulting with renters, thinking they are only here for a temporary basis, but we have renters that have lived here for two, three decades," she said. "They're not transient. They stay here for generations."

The circumstances may make it more difficult for a developer to construct a mixed-income housing project and still make a decent profit in the area, said Ralph Carmona, an economic development advisor to the board of the Boyle Heights Chamber of Commerce.

After seeing MJW's success with projects such as Santee Court in downtown Los Angeles, a series of garment-district buildings converted into luxury lofts, some are disappointed at the firm's decision to leave the project.

"I'm sad that [Mark Weinstein] is pulling away, to tell you the truth," Villalobos said. "He was offering mixed-use development with the luxury trimmings of his apartments downtown."

Chicago, City of...? // Refers to "Structural Meltdown" at Sears
By David Greising - Chief business correspondent - Chicago Tribune
May 21, 2006

The industries that once defined us are mostly gone, but now there's a smarter head on those big shoulders

Almost immediately after its publication in 1906, "The Jungle" forced the U.S. government to adopt aggressive new food-safety laws, further developed the genre of muckraking journalism and legitimized the demands of trade unionists, widely considered at the time to be anarchists and terrorists.

But great as those accomplishments were, the book made one other historic mark: It defined Chicago for generations of readers across the country and around the globe.

It portrayed the city as a rugged, tough place where capital got its way, as a place where immigrants sought fortunes-and found great misfortune too. "The Jungle" also defined Chicago as a city where Old World ethnic hatreds found a New World cast. Irish and Germans, Lithuanians and Slavs, all were smelted together, pitted against each other, brutalized yet sometimes unified by lives fed by the glinting and slashing of razor-sharp knives.

Everyone knew animals came to die in the sprawling 320-acre stockyards complex. Sinclair's unique insight was that the mechanized mayhem slaughtered the spirit of the butchers too. By playing host to this, Chicago was somehow implicated.

Other visitors saw it differently. Henry Ford came away inspired by a view that the time-and-motion efficiencies of Swift and Armour could create a new American industry. Carl Sandburg took a more localized view. He saw the stockyards as part of Chicago's place in the modernizing world. They symbolized Chicago's brawn and might, and the spirit of pride and cunning that also marks his landmark poem, "Chicago," which opens with the simple words: "Hog Butcher to the World." For much of the world, that was the reason Chicago mattered.

But what if Sinclair were writing today? Or Sandburg?

No one industry would emerge as an obvious target. Sinclair would be heartened that Chicago was among the first cities where masses of people demonstrated on behalf of immigrant workers. But if he wanted to take up the immigrants' cause today in Chicago, against whom would he rail? The skyscraper construction sites where many find jobs? The hotels where the immigrants make beds? The restaurants where they bus tables? The suburban tracts where they build homes? The small businesses they run?

If a writer today sought to define Chicago by the way its people work, as Sandburg did, that writer would hardly recognize the place from the one Sandburg portrayed.

There are the futures markets, obviously. And United Airlines. Big law and consulting firms and-until Arthur Andersen collapsed-at least one big accounting firm. Ad agencies still have offices here, but most of the big-picture "creatives" whose work once yielded Tony the Tiger and the Marlboro Man have migrated to the coasts. Boeing and Motorola, McDonald's and Abbott Laboratories have become the corporate nameplates of Chicago, replacing older names that had grittier pedigrees.

And there are the hundreds of jobs that give modern Chicago perhaps its biggest, yet its most ethereal asset: quality of life. In terms of self-definition-in shaping Chicago's image for the world-the Steppenwolf Theatre steps in for the steel mills, and the Chicago Symphony Orchestra plays the part of the Union Stock Yards.

Add it up, and a 21st Century Sandburg would make the most of what he has: "Hog Belly Trader for the World, Writ Writer, Consultee of Companies, Builder of Airports and the Nation's Intermodal Carrier, Prideful, Anxious, Hopeful, City of the Stringed Orchestra."

And yet, it is working. Chicago, unlike most cities that came into their prime in the industrial age, has pivoted and begun transforming itself into one of the world's great modern metropolises.

During the Rust Belt downturn of the 1980s, it appeared that Chicago might become another derelict relic of the industrial revolution. Another Detroit or Cleveland. The shutdown of the South Works steel mill in 1992-which once had employed 20,000 people-symbolized a broader breakdown in Chicago's economic standing.

Bad as the manufacturing malaise was, the disappearance of Wieboldt's, the bankruptcy of Montgomery Ward & Co. and the structural meltdown at Sears, Roebuck & Co. was equally profound. Merchants had led the drive to bring the World's Fair to Chicago in 1893. Three years after "The Jungle" was published, they had pushed for the Burnham Plan that saved Chicago's lakefront in 1909. If Chicago's great merchant class could not cope with the challenges of a modern world, it was feared, then the city was in real trouble.

But Chicago had too much going for it to just wither and die. Without really knowing it, and without any centralized planning, Chicagoans had put together some of the raw materials for success in the post-industrial society.

The financial markets tied the city into global networks and created a class of "knowledge workers" long before the term became fashionable. Sir Georg Solti took the Chicago Symphony on world tours that won Chicago respect as a place of culture and excellence. Law firms such as Baker & McKenzie globalized ahead of their brethren, and Arthur Anderson & Co.'s expansion into consulting-though ultimately an ill-fated move because of the conflicts of interest it created-branded Chicago as a place where leading-edge professional services could be found.

William Testa, an economist at the Federal Reserve Bank of Chicago, studies the city and its economic changes more closely than perhaps any economist in the country. And he is impressed by what he has witnessed. Between 2000 and 2004, Illinois lost 150,000 manufacturing jobs, a drop of nearly 18 percent. And yet, the overall economic base has grown and, unlike those of most major cities, Chicago's central business district is booming.

"Chicago has done very well. It has shed all this manufacturing and not really suffered a long-term decline," Testa says.

Chicago can hold its position even in the age of knowledge, when flows of information are as important as flows of capital or the movements of railroads and equipment. "We are in an information age," says Testa. "We can transmit anywhere around the world. But we still want to get unambiguous, creative information face to face. We haven't eliminated the need for that."

Chicago is well-situated for such needs. It is centrally located, has a deep pool of information-age talent, the cultural amenities that knowledge workers want and the service industries to support them.

To see how Chicago has made this transformation from the manufacturing to the knowledge age, there may be no better place to look than the trading floors of Chicago's futures exchanges.

They are places of creative destruction-the important but sometimes messy process of reinvention by which the old is cast aside to make way for something better. Both the Chicago Mercantile Exchange and the Chicago Board of Trade built huge new trading floors during the early 1990s. Now the floors seemingly have acres of open space because much of the trading has gone electronic and open-cry pit trading can't keep up with computers in most markets.

The Chicago exchanges nearly blew their chance to adapt: Internal strife slowed their embrace of technology, and European exchanges jumped in and grabbed market share. But once the Merc, and then the Board of Trade, did decide to change, they took advantage of the critical mass of local trading talent and have seen their volume-and their profile in international markets-soar.

The Merc's trading floor still has room for people like John Staren, who symbolizes Chicago's first step out of the "jungle" and into the global marketplace. As a young man, he worked at a meat broker that depended on the stockyards for its business. His father procured canned meat for the military during World War II.

Since 1963, Staren has traded pork bellies on the Merc's floor, a vestige of the days before electronics took over. The traders still jostle and joke as they try to edge out each other for profit on incremental price changes.

Staren and others in the belly pit say they will never go upstairs and sit in front of computers. "All the guys I know who trade upstairs aren't making money," Staren says. "We're floor traders. I don't want to trade on a screen."

Thanks to the boost from electronic trading, the Merc's stock price has made a Google-like surge since going public, trading at around $500 a share recently, more than 10 times its offering price in January 2003. It has helped Chicago remain a center for innovation in financial trading.

When the New York Stock Exchange decided to go electronic, it merged with a Chicago e-trading firm, Archipelago Holdings, which had built a reputation as the most sophisticated purveyor of trading technology.

Chicago's economic transformation has not been without problems. Entering an era in which technology would create new businesses, the city kept losing its most promising technologists. The founders of Netscape, the search engine that ushered in the Internet age, left Illinois after a dispute with the University of Illinois over control of their software. U.S. Robotics, which helped develop the Palm Pilot, sold out prematurely in 1997 to a Silicon Valley company.

Chicago had the intellectual heft and the financial resources to sustain a high-technology industry, but it lacked-and still lacks-an entrepreneurial infrastructure. Our universities don't encourage an entrepreneurial spirit among professors, as the likes of the Massachusetts Institute of Technology and Stanford University do. Leading technology companies such as Motorola have not spawned startups, as Hewlett-Packard once did. And Chicago's venture capitalists chased deals in Silicon Valley and elsewhere rather than at home.

Even so, Chicago's advances far outweigh its setbacks. University of Chicago sociologist Saskia Sassen says modern global cities will be less constrained by the limits of geography and capital than in the past. The networking effect of talent and knowledge will be the key to success. On that front, she argues in a book published by the Global Chicago Center, Chicago is among a few dozen urban centers around the world that have a chance to become true global cities.

Richard Florida, a George Mason University professor who coined the term "The Creative Class" to describe those who would lead the world in the age of the Knowledge Economy, says of Chicago: "[It's] city that is in the moment. It's more than just arts and culture; it has become a very open and exciting place . . . Its financial markets, its investment community, its arts. It's a creative economy in the broadest sense."

He notes that some of its lesser-known attributes are what make the city attractive today: the surge in housing downtown, investment in amenities such as Millennium Park, the planned expansion at O'Hare, the falling crime rate.

Every year, Florida surveys his students about where they want to live after college. Trends come and go, he says. Boston gets hot, then fades. Silicon Valley has its ups and downs. But Chicago every year ranks among the top three.

Alan Warms is the sort of person Florida has in mind when he explains why Chicago is attractive to the creative class. Warms went to business school at Northwestern, then worked for a consulting firm and a couple of other companies. When it was time to start his own firm in 1977, he stayed in Chicago. His company, Participate.com, was a dot-com affair, creating online communities for "brick and mortar" companies like Procter & Gamble, AT&T and Ace Hardware.

He raised $13 million, mostly from Chicago-based investors, and hired local talent. Sales reached $9 million in 2001. Then, after the dot-com bust, business dried up.

Warms sold the business, started looking for new opportunities-and found them. He's running a startup called Participate Media LLC from a loft office in Wrigleyville. The company publishes RealClearPolitics.com, a web clearinghouse of political commentary and analysis, and he is working on deals to create other Web properties.

"You hear a lot of complaining and hand-wringing" about Chicago as a place for technology startups, he says. "But I think it's a great place to start a business. You can raise money. It's a really big city, yet it's small enough that you're one degree of separation from everyone you need to meet."

Even in the neighborhoods that Sinclair studied when writing "The Jungle," the boom in the city's fortunes is more than a distant vision. Drive through the Stockyards Gate, and one enters the Stockyards Industrial District. There one sees Gordon Bros. Iron & Metal Co., Ebro Foods, Shred-All Recycling. Food services company Aramark has a major distribution center.

These are not knowledge-economy employers. But they create the kinds of jobs that sustain a city that must live on more than a downtown filled with parks and museums and office buildings.

Back in the "Jungle" days, this neighborhood was filled with people whose very job descriptions were enough to make some people ill. "Cattle drivers, hangers, hoisters, splitters, gut throwers, neck splitters, vein tiers, washers, trimmers, weighers and refrigerated car loaders" is the list on a plaque posted at the stockyards gate.

Today, the neighborhood is filled with construction workers, house painters, food processors and even meatpackers. The Great Western Beef Co., just outside the gate, is still in business after 99 years. Paul Borgia, says Great Western now takes slabs of meat from Kansas and Nebraska and trims them into steaks and stew meat for restaurants.

"You don't see much swinging stuff anymore, he says, referring to the carcasses that were a visual icon of the stockyards

In Sinclair's time, the stockyards, steel mills and railroads defined Chicago. In existentialist argot, it was capital ergo urbis. I have capital, therefore I am a city.

Capital sought out other capital, in part to fill its needs, in part to amplify its effects. And concentration of capital is what made cities great.

Today, the capital that matters is intellectual, artistic and creative capital. Shoulders need not be broad any more, but minds must be. A new kind of slaughter must take place: the creative destruction that helps one industry's death beget another industry's birth.

This is the sort of work that defines Chicago today. It's a jungle out there in the global economy. But so far, Chicago seems fit to survive-and even thrive.

Make Sure Your Money Lasts as Long as You
By Jonathan Clements – Getting Going – The Wall Street Journal Online
May 21, 2006

Retirement is a time to kick back, relax and wonder whether you will outlive your savings.

This, I regret, is a real danger. Spending down a portfolio in retirement is a wildly tricky exercise.

The problem: In all likelihood, you will want to spend more than your portfolio's after-cost, after-tax, after-inflation rate of return. And, in the long run, that can spell trouble.

Treading Water

Imagine you and your spouse retired at age 65 with a $400,000 investment portfolio that's divided equally between stocks and bonds. Let's also assume inflation runs at 3% a year throughout your retirement, while your bonds clock 5.5% and your stocks earn 8%.

You are fairly careful about investment costs, so expenses nick just half a percentage point a year out of your bond results and take just one percentage point a year from your stocks. That will give you an annual after-cost gain of 5% on your bonds and 7% on your stocks.

Based on your 50-50 stock-bond mix, your overall portfolio would notch 6% a year. If you pulled out half of that 6% each year to cover living expenses and reinvested the other half, you would be in great shape. The reason: Even after making your annual withdrawal, your portfolio would grow at 3% a year, keeping pace with inflation.

But unless you are extraordinarily wealthy, a 3% withdrawal rate won't be enough to live on. The odds are you will need to withdraw much or all of the 6%. That's especially true once you factor in taxes, which might snag 10% or 15% of your 6% return.

So what happens if you withdraw much or all of your 6% annual gain? Sure, your portfolio might initially tread water or continue to grow slightly. But you could still end up in dire financial straits.

Spiraling Down

To understand why, imagine you withdrew 6% of your $400,000 nest egg, or $24,000, at the start of your first year of retirement. That leaves you with $376,000, which goes on to earn 6% over the next 12 months, so you are back up to $398,560 by the end of the first year.

That might seem pretty good. You still have almost $400,000, even after making your first annual withdrawal. Instead, the first hint of trouble comes the following year. In that second year of retirement, to keep pace with inflation, you really need to withdraw 3% more, or $24,720.

Making allowances for inflation might seem like a minor matter, especially if consumer prices are rising at a mere 3%. But even a 3% annual inflation rate will eventually take its toll, boosting the cost of a $1 item to $1.81 after 20 years.

Faced with steadily climbing consumer prices, you will need to take larger and larger annual withdrawals. Remember how your parents warned you to "never dip into principal" and "never touch your capital"? Suddenly, you're on that slippery slope -- and things can get ugly quickly.

Let's assume you keep stepping up your annual withdrawals with the 3% inflation rate, while your remaining investments continue to grow at 6%. Your portfolio would slip permanently below $300,000 when you and your spouse are age 77 and your savings would fall below $200,000 when you're age 81.

By age 87, you would be down to your last $10,471 -- and unable to afford that year's desired withdrawal, which is now up to $45,986, thanks to all those years of 3% inflation.

Of course, you might not live until age 87. But that isn't a good bet. If both you and your spouse are age 65 and in good health, there's a 50% chance that one of you will live until at least age 92.

Playing Defense

What to do? In all likelihood, you won't have any choice but to spend more than your portfolio's after-cost, after-tax, after-inflation rate of return. Still, a little caution is clearly in order.

For instance, if you trimmed your initial withdrawal to 5%, your portfolio wouldn't give out until you and your spouse are age 94, while a 4.5% withdrawal rate would get you through to age 99. Even then, you wouldn't necessarily be out of the woods. In the scenario described above, we made some huge assumptions, including steady inflation, steady bond returns and steady stock returns.

But in truth, we don't know what inflation, bonds and stocks will average in the years ahead, nor do we know when the next spike in inflation or the next plunge in stock prices will occur. To see how year-to-year financial craziness can affect a withdrawal strategy, check out firecalc.com <http://firecalc.com/> 1, which incorporates investment returns from 1871 on.

Alternatively, head to www.troweprice.com 2 and click on either of the two links directly beneath "individual investors." From there, go to the tab for "investment planning & tools" and try the retirement-income calculator in the section devoted to retirement planning. The calculator figures out your withdrawal strategy's chances of success by looking at how it would perform in 500 different market scenarios.

A big risk: You retire and immediately get hit with a vicious bear market, like the one that started in March 2000. If that happens, the one-two punch of plunging stock prices and rising withdrawals could quickly eviscerate your portfolio.

Faced with that risk, you shouldn't avoid stocks and stock funds. A healthy stock allocation is necessary to generate the sort of long-run inflation-beating gains needed to carry you through a retirement that might last 30 years. Instead, if you get hit with really rough markets, focus on temporarily trimming your spending and avoiding all stock sales until the market recovers.

To give yourself an added layer of protection, you might stash, say, 25% of your nest egg in an immediate fixed annuity that pays lifetime income. You could also keep a cash cushion equal to three or five years of portfolio withdrawals. Invest this cash cushion in a mix of short-term bonds and a money-market fund.

Thanks to your cash cushion and the annuity's income, you will have a reliable source of spending money during rough markets. Your goal: Live off these income sources, while you wait for your stock-market investments to bounce back.

Arthur Martinez to chair ABN AMRO advisory board
Crain’s Chicago Business Online
May 19, 2006

Former Sears, Roebuck and Co. chief Arthur Martinez has been promoted to chairman of the supervisory board of LaSalle Bank Corp.’s Dutch parent.

Mr. Martinez, 66, has served on the 12-member supervisory board of ABN AMRO Bank N.V. since 2002.

The board is an adviser to the banking company’s managing board, and its members are not employees. Mr. Martinez also serves on the board’s audit committee, nomination and compensation committee and compliance oversight committee.

Mr. Martinez is also on the boards of directors of PepsiCo Inc., Liz Claiborne Inc., IAC/Interactive Corp. and International Flavors & Fragrances Inc.

Sears turns a 1Q profit, but can it sustain growth?
By Nathaniel Hernandez - The Associated Press
Suburban Chicago Newspapers
May 19, 2006

HOFFMAN ESTATES — Executives at Sears Holdings Corp. rolled the dice a year ago on an aggressive profitability strategy, and it seems the gamble is paying off.

But analysts say the company needs to collect its winnings and move on to another table where it can address sliding same-store sales and lost market share.

Sears turned a $9 million loss during the first quarter of 2005 into a $180 million profit for the same period this year, easily beating Wall Street estimates.

Investors celebrated by opening their wallets as Sears shares climbed almost 13 percent Thursday.

But the news wasn't all rosy for Sears.

The company announced Thursday that it was paying $215 million to settle a federal class-action lawsuit. And the same earnings report that helped boost the company's stock also showed same-store sales continue to decline.

George Rosenbaum, chairman of Leo J. Shapiro and Associates, a Chicago-based retail consulting firm, said the company's strategy has been a short-term fix.

"If they were operating as a retailer with a future, they would have a loss because they would be investing in making a more powerful retail mechanism," Rosenbaum said. "What they are doing is disinvesting to generate more profits. The profits are about the maximum you can expect to make and still run a minimally creditable retail store."

Cost-cutting measures were implemented by the company after it was formed last year through Kmart's acquisition of Sears.

The company has slashed its work force, the amount of money spent on advertising and the number of promotions offered. It has also aggressively edited the product lines in their Sears stores, Rosenbaum said.

"If it doesn't sell well, they throw out the entire department," Rosenbaum said. "They don't keep departments to be a complete or encyclopedic store."

In its earnings report, the nation's third-largest retailer said the measures helped improve profitability at both its Kmart and Sears chains in the United States.

Industry observers said the figures show the company's cost-cutting measures are working, but questioned how much longer Sears can continue to lose market share.

Sales in stores open at least one year, a widely used industry gauge known as same-store sales, declined 4.8 percent domestically. Same-store sales fell 8.4 percent at Sears' U.S. stores due to sales drops in all categories except home appliances, the company said.

Same-store sales slipped 0.2 percent at Kmart due to lower transaction volume from home goods, partially offset by higher apparel and food sales.

"The real question is whether this is sustainable over the long run," said Morningstar analyst Kim Picciola. "How much longer can we continue to see a decline in same store sales and margin improvement from a cut in spending?"

Attention Michigan: Kmart's empty vows offer lessons
By Daniel Howes - Detroit News
May 19, 2006

Eighteen months ago, Oakland County Exec L. Brooks Patterson and I were sitting in a restaurant in Germany, mulling the blockbuster news back home: Kmart Corp. was buying Sears, Roebuck and the new corporate headquarters would be in suburban Chicago.

Michigan, Patterson rightly predicted in more colorful language than I'm allowed to use here, would get screwed.

Oh, no, Chairman Eddie Lampert said, Kmart would prosper. Troy would remain a viable regional headquarters. Kmart's Martha Stewart line, its value enhanced during the diva's detour into the slammer, would flourish.

All this from the guy who'd been stringing along Gov. Jennifer Granholm and her people with the prospect that an independent Kmart was just days away from solidifying its HQ in southeast Michigan -- thanks to an incentive package worth roughly $200 million in taxpayer dough.

Promises made, broken

None of it happened. The business changed. The competition was tougher than expected. The power moved to suburban Chicago and Lampert's Connecticut offices. The scale of Kmart's decreptitude, the culmination of decades of mismanagement and denial, proved too vast to reverse.

Right. Kmart's big brown headquarters on Big Beaver Road has a new owner, the furniture and supplies sold off in a blue-light garage sale. The symbolic indignity confirms Kmart's slide from the corporate Michigan scene, just as Crowley's, Jacobson's, American Motors and others did before it.

There's a cautionary tale here as thousands of auto workers and their salaried counterparts mull whether to leave their sinecures on guarantees of health benefits and pensions, and it's this:

Some of Corporate Michigan's biggest players have an earned reputation for making promises they cannot keep. For some, the deception was intentional (Kmart) or convenient (Daimler-Chrysler's "merger of equals").

Others proffered a vision of the future that was devoid of realism, utterly unattainable in a competitive business they no longer can bend to their corporate will. To wit: GM's 29 percent market share and Ford's a $7 billion profit by mid-decade.

Skeptics 'R' Us

Didn't happen.

Now, there are few sure things in business, particularly Old Economy plays in the new global order. Be they salaried or hourly, workers can't be blamed for seeking assurances from the brass anymore than they should be criticized for not believing what they hear when they get them.

Kmart's bankruptcy gutted the portion of employee 401(k) plans held in Kmart shares. In a sweeping victory for the dispossessed, a federal judge approved an average repayment of $162 for about 71,000 current and former employees. Gee, thanks.

No wonder e-mails are circulating among UAW members warning that the mondo attrition plan crafted by GM and its former parts unit, bankrupt Delphi Corp., "does not stipulate that GM will guarantee the pension if Delphi decides to terminate the pension after" October 2007.

Meaning there are no guarantees, even if it says there are.

New Sears mystifies analysts
By Mike Comerford - Business Writer - Daily Herald Suburban Chicago
May 19, 2006

Stock jumps after earnings far exceed experts" expectations

Lots of people think they know Sears — we grew up with its appliances and clothes. Yet even those who closest follow the retail department store chain these days get it wrong. Sears, Roebuck and Co. morphed last year into Sears Holdings Corp. upon its merger with Kmart and it has mystified analysts ever since. Sears Holdings on Thursday surprised Wall Street with quarterly earnings 75 percent higher than the consensus estimate of analysts, according to Thompson Financial. As a result, Sears shares soared $17.89, or 13 percent, to $155.85 on the Nasdaq Stock Market.

Why were Wall Street analysts so wrong about Sears and who can be trusted to analyze Sears’ future?

There appears to be a sharp divide between retail analysts and Wall Street analysts.

“I can’t tell you what (Wall Street analysts) are looking at,” said Howard Davidowitz, chairman of Davidowitz & Associates, a New York City-based retail consulting and investment banking firm.

Equity analyst Kim Picciola doesn’t make quarterly earnings estimates, but acknowledges how wrong Wall Street was this time around.

At the same time, Sears same-store sales fell 8.4 percent for the quarter and the holding company’s revenue fell 12 percent. Some analysts question how long earnings can be propped up by cost cutting if sales continue to fall.

“Looking at (Sears) purely as a retailer, it looks bleak,” said Picciola, analyst for Chicago-based Morningstar Inc. “But if you look at (Sears) as a real estate or other business that it can transform into, there are other options more on the upside. That’s why people are investing in the stock.”

Clearly, some analysts on Thursday were happy Wall Street estimates of Sears earnings were wrong.

“We continue to view Sears as an undervalued turnaround story,” said Gary Balter, a Credit Suisse analyst, in a report.

Balter said the company made progress on “all fronts” except management of working capital. He rates the shares “outperform” and he is the top-ranked Sears analyst by StarMine Professional.

But even his earnings estimate was 33 percent lower than what Sears reported.

“Progress is definitely being made,” agree Scott Rothbort, president of New Jersey-based Lakeview Asset Management.

Off-the-mark earnings estimates and such a wide disparity of views about the company may stem in part from Chairman Edward Lampert’s reticence to share information. For example, the company no longer reports monthly sales numbers and doesn’t hold the extensive analyst briefings of the past.

“Other companies I give guidance on give more (financial) transparency,” Picciola said. “There are so many moving parts with Sears … it’s a merging company … there are so many initiatives going on … and it’s a turnaround story.”

Sears earned $180 million, or $1.14 per share, versus a loss of $9 million, or 7 cents per share, during the same period last year. Revenue fell from $12.8 billion to $12 billion.

Sears also said it will pay $215 million to settle a class-action suit that alleged the company misrepresented the health of its credit card business in 2001 and 2002. The company sold the unit in November 2003.

Lampert, the hedge fund manager who engineered Kmart Holdings Corp.’s purchase of Sears, Roebuck and Co., cut payroll and administrative costs 11 percent to lift profit at both chains.

Lampert, 43, combined Sears with Kmart to create the No. 1 U.S. department-store operator by sales. Since Kmart took over Sears in March 2005, Lampert has shut Kmart’s Troy, Mich., headquarters and fired more than 1,500 employees.

Some analysts speculate Lampert is interested in Sears as a holder of high-value real estate. Others view him as someone who wants to change Sears into an investment firm and wind down retail operations. However, Lampert has said he’s committed to building the retailer and won’t sell large numbers of stores.

Sears profit, shares surge; doubts linger
Chicago Tribune news services
May 19, 2006

Shares of Sears Holdings Corp. posted their largest increase in more than a year Thursday after the company reported first-quarter profit that beat estimates, but many analysts say they still aren't sold on the firm's turnaround.

The Hoffman Estates-based retailer reported net income of $180 million, or $1.14 a share, easily surpassing estimates of 65 cents a share, according to Thomson Financial.

Chairman Edward Lampert, who arranged Kmart Holdings Corp.'s purchase of Sears, Roebuck and Co., cut payroll and administrative costs 11 percent to lift profit at both chains.

First-quarter revenue was $12 billion. A year ago, Sears had a net loss of $78 million, or 48 cents a share, on revenue of $12.8 billion. Those figures are calculated as if the companies combined at the beginning of fiscal 2005, though the merger didn't happen until March of that year.

Shares of Sears rose as high as $160.01 before closing at $155.85, up $17.89, or 13 percent, on the Nasdaq stock market.

"While we're pleased with the progress we're making, we continue to look for ways to be more efficient and effective in our business," said Sears Chief Executive and President Aylwin Lewis.

Scott Rothbort, president of Millburn, N.J.-based Lakeview Asset Management, agreed. "Progress is definitely being made," he said. "I think they're starting to get their merchandising right."

Other analysts aren't so optimistic. Same-store sales continue to languish at Sears and Kmart, and some are wondering how the nation's third-largest retailer plans to recapture lost market share amid heightened competition.

Same-store sales, or sales at stores open at least a year, are considered a key indicator of a retailer's health. Sears posted declines in same-store sales in all categories except home appliances. At Kmart, sales of home goods fell, while clothing and food sales rose.

Industry observers said the figures show the company's cost-cutting measures are working, but they questioned whether Sears can maintain profits while it keeps losing market share.

"How much longer can we continue to see a decline in same-store sales and margin improvement from a cut in spending?" said Morningstar analyst Kim Picciola.

While the cost-cutting has helped Sears' bottom line, it has also aided its competitors, said Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consulting and investment banking firm.

"They have fueled the turnaround of many of their competitors because they have lost many of their customers," he said. "All things being equal, I would say that within 12 months you will see the earnings start to go the other way, downward, because what they are doing is not sustainable. ... There's only so much you can do with cost-cutting."

George Rosenbaum, chairman of Leo J. Shapiro and Associates, a Chicago-based retail consulting firm, said the firm's strategy has been a short-term fix. "If they were operating as a retailer with a future they would have a loss because they would be investing in making a more powerful retail mechanism. What they are doing is disinvesting to generate more profits. The profits are about the maximum you can expect to make and still run a minimally creditable retail store."

Looks like slash and stash strategy is paying off for Sears
By Sandra Guy – Business Reporter - Chicago Sun-Times
May 19, 2006

Sears' stock shot up 13 percent Thursday after the retailer reported its first-quarter profit jumped higher than expected despite continued sales declines at Kmart and Sears stores.

The stock closed Thursday at $155.85, up $17.89.

Thursday's earnings report showed for the second straight quarter that Sears Holdings Chairman and hedge-fund guru Edward S. Lampert is slashing costs and jobs to focus on building cash and boosting shareholder returns.

Sears Holdings cut payroll and administrative costs 11 percent to boost the bottom line at the company's Sears and Kmart department store chains in the latest quarter that ended April 30.

Yet sales continued to fall: 8.4 percent at Sears stores, and a less dramatic 0.2 percent at Kmart in the quarter.

The Hoffman Estates-based Sears Holdings also said Thursday it agreed to pay $215 million to settle a class-action lawsuit filed by shareholders who alleged Sears executives fraudulently misled them about the health of Sears Roebucks' credit-card business in 2001 and 2002. Insurance carriers are expected to pay all but $85 million of the total.

Sears surprised Wall Street by reporting profits of $180 million, or $1.14 a share, for the quarter ended April 29, vs. a loss of $9 million, or 7 cents a share, a year ago. Analysts' average estimate was only 65 cents a share.

Revenue jumped 57 percent to $12 billion from $7.63 billion a year earlier. The revenue figures are skewed because Kmart's March 2005 takeover of Sears is treated as though it happened at the start of fiscal 2005.

Analysts had mixed reactions, but repeated their stance that the real proof of a turnaround will be in the next quarter's sales results at stores open a year or longer.

Said Gregory Melich, a Morgan Stanley analyst, "The moment of truth will be if [comparable-store sales] can stabilize."

Said Carol Levenson of research firm Gimme Credit, "We can't wait to see what kind of a retailer Sears will be when it grows up."

Mayor Bloomberg, Governor Pataki Cut Ribbon For New Sears Headquarters
NY1NEWS
May 18, 2006

As the head of the state assembly was questioning why rebuilding at the World Trade Center site wasn't moving faster, Mayor Michael Bloomberg and Governor George Pataki were just blocks away celebrating another corporate move to Lower Manhattan.

This time it's the company behind Sears and K-mart. Mayor Bloomberg and Governor Pataki, joined by Sears Holding executives, cut the ribbon for the new headquarters for the company's design department. It creates clothes and accessories for Sears and K-Mart stores.

"It's no surprise that Sears is expanding its offices in New York City, you should know,” said Bloomberg. “When Sears went retail in 1925 – no, I was not around then – it relied on its buying offices in New York to find products to appeal to fashion-conscious retail customers throughout the country."

Sears design offices used to be based in Chelsea.

Sears Holdings says it will more than double the design workforce by hiring 120 new employees at the new offices.

Sears Swings to Profit on Cost Cuts
A Wall Street Journal Online News Roundup
May 18, 2006

Sears Holdings Corp. swung to a first-quarter profit despite declining sales at its Sears and Kmart chains, as the retailer continued to cut costs aggressively. It also settled a lawsuit.

The Hoffman Estates, Ill., company -- which was formed in March 2005 with the merger of Sears and Kmart -- reported net income of $180 million, or $1.14 a share, for the quarter ended April 30. Sears had a loss of $9 million, or seven cents a share, a year earlier, when it took a $90 million charge on a change in its inventory-accounting method. Excluding that charge, Sears would have posted earnings of $81 million, or 65 cents a share, last year.

Analysts had expected a profit of 65 cents a share for the most recent period, according to Thomson First Call.

"While we're pleased with the progress we're making, we continue to look for ways to be more efficient and effective in our business," said Aylwin Lewis, Sears Holdings' chief executive officer and president.

Revenue rose 57% to $12 billion from $7.63 billion a year ago, primarily due to the inclusion of Sears operations for the full 13-week period in the latest quarter.

Still, same-store sales fell 4.8%. Kmart's comparable-store sales -- which had increased during the fourth quarter for the first time since 2001 -- dropped 0.2%. The company blamed sluggish sales of home goods, which were partially offset by increased sales in apparel, food and other consumable items.

At Sears stores, same-store sales fell 8.4% with "declines across all categories and formats except within home appliances," which generated a "modest" increase, the company said.

"With a goal of dramatically improving the customer experience at all of Sears Holdings' touch points, we are starting with the basics and working with our associates to drive the culture shift necessary to become a great retail company," Mr. Lewis said.

Separately, Sears announced its Sears, Roebuck & Co. unit agreed to settle a class-action lawsuit brought in federal court by purchasers of Sears, Roebuck securities from Oct. 24, 2001, through Oct. 14, 2002.

The company said it has agreed to make a payment of $215 million to settle the suit, which concerned statements made about the company's credit business during the class-action period. After giving effect to anticipated insurance proceeds, Sears expects its portion of the payment to be about $85 million on a pretax basis.

The company doesn't expect an impact on earnings from the settlement because it previously established a reserve. Sears noted that it didn't admit to any wrongdoing by agreeing to the settlement, and it denies committing any violation of law.

Sears shares sharply higher as cost controls aid profit
By Michael Baron - William Spain
Investors Business Daily.com
May 18, 2006

NEW YORK (MarketWatch) -- Shares of Sears Holding jumped more than 13% Thursday after it posted a hefty increase in first-quarter earnings at its Kmart and Sears domestic operations that were driven by cost cutting.

Before the opening bell, Sears (SHLD) reported a profit of $180 million, or $1.14 a share, for the quarter ended April 29, up from a year-ago loss of $9 million, or 7 cents a share. Excluding the charge, Sears Holdings earned $81 million, or 65 cents a share, last year.

Sears latest results also benefited in comparison with last year's comparable quarter by the absence of a $90 million charge related to a change in accounting for certain inventory costs.

On a pro forma basis, calculated as if Kmart and Sears had been combined by the beginning of fiscal 2004, the company earned $12 million, or 7 cents a share, in last year's first quarter, excluding the impact of the accounting change.

The average estimate of analysts polled by Thomson First Call was for a profit of 65 cents a share in the period ending in April.

Total revenue rose in the latest three months to $12 billion from $7.63 billion a year ago, primarily due to the inclusion of Sears operations for the full 13-week period in the latest quarter. Sears domestic same-store sales fell 8.4% in the quarter, while Kmart's comparable stores slipped 0.2%.

The stock jumped $17.89, or almost 13%, on the day to close at $155.85 after cracking to a high of $160.01 earlier on.

"While we're pleased with the progress we're making, we continue to look for ways to be more efficient and effective in our business," said Aylwin Lewis, Sears Holdings' chief executive officer.

Lewis added that Sears is "starting with the basics and working with our associates to drive the culture shift necessary to become a great retail company."

The company attributed the dip in same-store sales at Kmart to lower transaction volumes within home goods, while it said the decline in Sears Domestic comparable sales was due to drops across all categories and formats, except home appliances.

Analyst reaction

Morgan Stanley said the results should please shareholders, especially the successful cost cutting.

"It was all about margins, which expanded to 2.8% vs. our 1.9% estimate and 0.7% a year ago," it said in a research note. "SG&A (selling, general and administrative expenses) was cut by $300 million vs. our expectation of a $160 million decline, which took SG&A/sales down to 22.7% from 23.8%."

The firm noted that this is the last quarter where comparisons are against the cost base prior to completion of the Kmart/Sears merger.

"The moment of truth will be if comps can stabilize (go towards zero) as the money amounts of SG&A cuts, in our view, decelerate," Morgan told clients, adding that it believes the final three quarters of the year will see $230 million in lower SG&A.

Class action settlement

In addition, the company said its Sears, Roebuck & Co. unit agreed to settle a class action lawsuit brought in federal court by purchasers of Sears, Roebuck securities from Oct. 24, 2001, through Oct. 14, 2002.

The company agreed to make a payment of $215 million to settle the suit, which concerned statement made about the company's credit business during the class action period.

After giving effect to anticipated insurance proceeds, Sears expects its portion of the payment to be about $85 million on a pretax basis. The company doesn't expect an impact on earnings from the settlement because it previously established a reserve. Sears noted that it didn't admit to any wrongdoing by agreeing to the settlement, and it denies violating the law.

Sears posts 1st-quarter profit vs loss
Reuters.com
May 18, 2006

Sears posts 1st-quarter profit vs. loss

Sears Holdings Corp. on Thursday reported a quarterly profit, reversing a year-ago loss, as it cut costs and eliminated clearance sales at its Sears stores.

Sears Holdings, the owner of Sears and Kmart stores, said net income was $180 million, or $1.14 per share, in the fiscal first quarter ended April 29, compared with a loss of $9 million, or 7 cents per share, a year earlier.

Analysts, on average, had expected a first-quarter profit of 64 cents per share, according to Reuters Estimates. The retailer typically does not provide earnings forecasts.

Shares rose 7.2 percent in premarket trading.

Last year's results included a charge of $90 million for an accounting change. Excluding that, the retailer had a profit of $81 million, or 65 cents per share.

Quarterly sales jumped by $4.4 billion to $12.0 billion, although the results were skewed by Kmart's acquisition of Sears, Roebuck & Co., which closed in March 2005 and was therefore only partly reflected in the year-ago results.

Sales at stores open at least a year -- a key retail measure known as same-store sales -- were down 0.2 percent at Kmart and down 8.4 percent at Sears stores.

The retailer said sales at its Sears stores declined in all categories except for home appliances, which generated a "modest" increase.

Under Chairman Edward Lampert, the hedge fund manager who brought Kmart out of bankruptcy and later bought Sears, the retailer has focused on cutting costs and building cash.

Lampert has eliminated profit-crunching clearance sales at Sears stores, but that has exacerbated sales declines, leading some analysts to question the chain's future.

Some investors and analysts think Lampert intends to sell off the stores to cash in on the valuable real estate, but Lampert has insisted that he intends to continue running Sears as a retailer.

The company reported $3.2 billion in cash at the end of the quarter, up from last year's $1.9 billion.

The stock rose $9.95 to $147.91 on the Inet electronic brokerage system.

Sears Settles Credit Card Lawsuit
HoustonChronicle.com - Associated Press
May 18, 2006

HOFFMAN ESTATES, Ill. — Sears Holding Corp. said Thursday it reached a $215 million settlement in a shareholder lawsuit alleging that the company had hidden from shareholders weakness in the company's credit card business. The settlement is subject to court approval.

The company expects to pay $85 million after insurance proceeds. Because the company had reserved money for the suit - which had been pending in the U.S. District Court for the Northern District of Illinois - the company does not expect the settlement to affect earnings.

Shareholders who purchased stock between Oct. 24, 2001 and Oct. 14, 2002 had filed a number of lawsuits against the company, alleging the company overstated the value of its credit card business and understated risks and delinquency rates. When the company revealed the true state of the credit card business in October 2002, the stock fell almost 32 percent, the lawsuit said.

The company will disclose more details of the settlement after it is approved.

Sears did not admit guilt as part of the settlement. The company has since sold its credit card business.

Earlier Thursday, Sears Holdings reported a first-quarter profit topping Thomson Financial consensus estimates and reversing a year-earlier loss.

Shares of Sears rose $16.57, or 12 percent, to $154.53 in early Nasdaq trading.

Sears' first-quarter profit beats expectations
Crain’s Chicago Business.com
May 18, 2006

Sears' first-quarter profit beats expectations
Cost-cutting and eliminating clearance sales boosted profit

(Reuters) — Sears Holdings Corp. on Thursday reported a much bigger-than-expected quarterly profit as it cut costs and eliminated clearance sales at Sears stores, sending its stock up nearly 9 percent in heavy premarket trading.

The No. 3 U.S. retailer, formed last year when Kmart bought Sears, Roebuck & Co., also said it agreed to settle class-action litigation involving comments made about the credit card business it has since sold.

The company said net income was $180 million, or $1.14 per share, in the fiscal first quarter ended April 29, compared with a loss of $9 million, or 7 cents per share, a year earlier.

Analysts, on average, had expected a first-quarter profit of 64 cents per share, according to Reuters Estimates. The retailer typically does not provide earnings forecasts.

Last year's results included a charge of $90 million for an accounting change. Excluding that, the retailer had a profit of $81 million, or 65 cents per share. Quarterly sales jumped by $4.4 billion to $12.0 billion, although the results were skewed by Kmart's acquisition of Sears, which closed in March 2005 and was therefore only partly reflected in the year-ago results.

Sales at stores open at least a year — a key retail measure known as same-store sales — were down 0.2 percent at Kmart and down 8.4 percent at Sears stores.

The retailer said sales at its Sears stores declined in all categories except for home appliances, which generated a "modest" increase.

Under Chairman Edward Lampert, the hedge fund manager who brought Kmart out of bankruptcy and orchestrated the Sears takeover, the retailer has focused on cutting costs and building cash.

Lampert has eliminated profit-crunching clearance sales at Sears stores, but that has exacerbated sales declines, leading some analysts to question the chain's future.

Some investors and analysts think Lampert intends to sell off the stores to cash in on the valuable real estate, but Lampert has insisted that he intends to continue running Sears as a retailer.

The company reported $3.2 billion in cash at the end of the quarter, up from last year's $1.9 billion.

Sears Holdings also said that Sears, Roebuck had agreed to pay $215 million to settle the class-action litigation. It expects insurance to cover most of that, and it had also set aside reserves, so the company does not expect it to affect earnings.

The stock rose $12 to $149.96 on the Inet electronic brokerage system.

Sears Holdings Reports 1st-Qtr Net Income on Reduced Expenses
BLOOMBERG.COM
May 18, 2006

Sears Holdings Corp., the largest U.S. department-store company, posted first-quarter profit of $180 million after reducing expenses.

Net income was $1.14 a share, Hoffman Estates, Illinois- based Sears said today in a statement distributed by PR Newswire. Revenue was $12 billion.

Chairman Edward Lampert, the hedge fund manager who engineered the Kmart Holdings Corp.'s purchase of Sears, Roebuck & Co., is revamping stores and selling more items at full price to restore profitability. Sears also hired a new team of executives to improve merchandise as the retailer's same-store sales have lagged behind rivals including J.C. Penney Co. and Federated Department Stores Inc.

Lampert ``is bringing in the right people to better figure out what makes sense at Sears,'' said Scott Rothbort, president of Millburn, New Jersey-based Lakeview Asset Management, which owns Sears shares. ``They're testing and they may not quite know right now who they're trying to attract.''

Shares of Sears fell $2.82, or 2 percent, to $137.96 yesterday in Nasdaq Stock Market composite trading. The stock rose 1.4 percent in the year through yesterday. Federated shares gained 9.4 percent and J.C. Penney increased 26 percent.

Analyst Estimates

Sears has about 3,900 stores in the U.S. and Canada.

Credit Suisse analyst Gary Balter, who is top-ranked by StarMine Professional, estimated profit of 76 cents a share. Balter, based in New York, rates the shares ``outperform.''

The average estimate of five analysts surveyed by Thomson Financial was 64 cents a share. Thomson doesn't disclose the parameters for the estimates in its survey.

Lampert, 43, combined Sears with Kmart to create the No. 1 U.S. department-store operator by sales. Cincinnati-based Federated, the owner of Macy's and Bloomingdale's, is the second-largest.

At the company's annual meeting last month, Lampert said he's committed to building the retailer and won't sell large numbers of stores. He also told shareholders he wants Sears to better serve customers and to promote clothing brands such as Lands' End to boost sales.

Sears this weekend will open 12 Sears Grand stores after Lampert reversed course on plans for new stores that operate outside of malls. The stores group merchandise by category or room, with kitchen appliances displayed with dishes and children's clothing, shoes and underwear in one area.

Sears Essentials

In February 2005, Lampert said the company would convert more than 400 Kmart locations to a store format called Sears Essentials that would carry convenience foods, sporting goods and health and beauty items along with merchandise found in Sears department stores.

Instead, the company slowed the conversions and dropped the Essentials name, designating all off-mall stores as Sears Grand. The company operated 50 Sears Essentials stores as of Jan. 28.

Recent positive comments from suppliers including Whirlpool Corp. and Martha Stewart Living Omnimedia Inc. could be an indication Sears ``is slowing down the negative sales trends,'' Balter wrote in an April 26 report.

Martha Stewart executives said on a conference call that sales of its home furnishings at Kmart rose 4.4 percent in the last quarter, according to Balter. Whirlpool executives said Kenmore sales ``showed marked improvement and posted improved year-over-year results.''

Martha Stewart Deal

Last month, Martha Stewart signed a deal to create a line of housewares for Federated to lessen its reliance on Kmart, where it sells its Martha Stewart Everyday home collection.

A former risk-arbitrage executive at Goldman Sachs Group Inc., Lampert heads ESL Investments Inc., a hedge-fund company in Greenwich, Connecticut. He has focused on buying undervalued companies and said he's a student of billionaire Warren Buffett's investment philosophy of buying assets shunned by others.

Since Kmart took over Sears in March 2005, Lampert has removed Alan Lacy as chief executive officer, shut Kmart's Troy, Michigan, headquarters and fired more than 1,500 employees.

Last month Sears said it would increase its share buyback program by 50 percent with an additional $500 million in share repurchases. At end of the last fiscal year, Sears had $4.4 billion in cash.

Sears Canada Deal

Sears has also won shareholder support for a C$899 million ($808 million) takeover of Sears Canada Inc., after boosting its offer by almost 7 percent to C$18 per share.

Sears Canada's board rejected the first offer on Feb. 22 after its financial adviser, Genuity Capital Markets, valued the shares at C$19 to C$22.25. Scotia Capital advised Sears Holdings.

Lampert is seeking to take control of the 46 percent of Sears Canada that the company doesn't own to compete against Wal-Mart Stores Inc. and Hudson's Bay Co.

Earlier this month, hedge-fund manager William Ackman accused Sears Holdings of seeking to ``intimidate'' investors opposed to the bid, saying the Canadian unit's stock is worth more than double the C$18 offer.

Ackman claims that Bank of Nova Scotia, which advised Sears Holdings on the deal, has a conflict of interest because the lender tendered 4.5 million shares to the offer as part of a larger group whose support ensured the success of the bid. Scotiabank said last month that the Ontario Securities Commission is reviewing its role in the takeover.

Ackman, who heads Pershing Square Capital Management in New York, was responding to a statement Sears issued May 1 calling his accusations "baseless.''

Of seven securities analysts tracked by Bloomberg, five recommend buying Sears shares, one says ``hold'' and one says "sell.''

Defiant Home Depot = worried investors
Analysts bash home improvement retailer's decision not to report crucial sales numbers going forward; shares see red on Wall Street.
By Parija Bhatnagar - staff writer - CNNMoney.com
May 16, 2006

NEW YORK - Retail analysts said Tuesday that Home Depot's decision to stop reporting quarterly sales was "curious," "strange," "irresponsible" and "highly suspect."

Investors seemed to agree, sending the retailer's shares down more than 4 percent on Wall Street.

"This is a terrible way to do business," said George Whalin, CEO of Retail Management Consultants. "This is a publicly traded company with thousands of investors. Same-store sales are a key measure of evaluating how a retailer is doing. It's dishonest and irresponsible for Home Depot to withhold this information from its stock holders. It gives the perception that the company has something to hide from the financial community."

In a note to clients Tuesday, Goldman Sachs analyst Matthew Fassler predicted that Home Depot's decision to stop disclosing comparable-store sales trends "will likely capture almost as much focus as the results themselves."

That was proving to be true. Atlanta-based Home Depot, the No. 1 home improvement retailer, reported second-quarter profit that beat Wall Street's estimates on strong overall sales.

So why was the stock seeing red?

Observers said it's troubling that Home Depot's decision coincided with softer than expected retail sales during the quarter.

"We dislike any decision to reduce transparency, particularly one executed in a quarter when the measure in question most likely shows poorly," Fassler said. "We can only surmise that [the decision] reflects a reality that this measure does - and will - reflect poorly on the firm vs. competitors."

Same-store sales: Big deal or not?
Same-store sales are defined as sales at a company's retail stores open for at least a year. It's one of the most common and long-standing metrics of gauging a retailer's performance.

Ken Perkins, retail analyst and president of research firm Retail Metrics, said he's not aware of any other retailer that used to report same-store sales and suddenly decided not to. Retailers such as Wal-Mart and Target did stop reporting these numbers on a weekly basis, but continue to report monthly same-store sales.

Home Depot used to report only quarterly same-store sales numbers.

"It's curious that of all the metrics that they could have withheld, they chose this one," said Perkins. "Same-store sales are a good measure of a company's organic growth. They show how well or nor a company is doing because new stores tend to be big sales generators."

In an earnings call with analysts, Home Depot executives said it took the decision for the purpose of "comparability."

But Home Depot's explanation didn't make sense to Perkins or to Morningstar analyst Anthony Chukumba.

"Their reason is suspect," Chukumba said. "This is just going to make it harder for analysts to figure out the health of Home Depot's business."

As an alternative, Chukumba said analysts could make an assumption on Home Depot's sales going forward based on average quarterly change in customer traffic trends and the average ticket.

"That's essentially what same-store sales measure. But this calculation won't be precise and the company is just giving more work to do to analysts," he said.

Could Wal-Mart be next?
Wal-Mart executives have repeatedly said that they would prefer Wall Street not focus so intently on its same-store sales - which have slowed significantly as the company saturates its domestic market - and instead look at its total sales which have been growing at a double-digit percentage on an annual basis.

Whalin thinks it will be a big mistake for Wal-Mart to follow Home Depot's example.

"Total sales aren't a key measure of success if your sales are up simply because you're opening more stores," Whalin said. "There a small portion of retailers who maybe think that same-store sales aren't important to use to evaluate them. I say it does give a sense about how the business is really doing. It's every bit as important as the profit number.

"If a retailer's same-store sales are growing along with its profits, it means it's a successful company," Whalin added.

Some observers did offer a contrary take on the issue and even suggested that Wall Street might be overreacting to Home Depot's move.

"Same-store sales are more important for department stores and discounters whose business is more cyclical than Home Depot's," said Burt Flickinger, an independent retail analyst."

"I think Home Depot's actions can be worrisome in that this metric is a very good barometer that shows not only whose business is growing but also who's contracting," Flickinger said.

Home Depot's profits were up 19 percent in the quarter and sales rose 13 percent, the company said.

Said Flickinger, "Home Depot is growing its business base. It's trying to appeal more to women shoppers and going after the professional market." Without its same-store sales, Flickinger said he would probably now look at other metrics such as sales productivity per square foot, gross margins, litigation liability to evaluate Home Depot.

"Home Depot is trying to transform itself into a bigger and better retailer and grow sales," said Marshal Cohen with market research firm NPD Group. "It's challenged by a lot of obstacles along the way, and I can understand that the company doesn't want to be pre-judged on its sales numbers while it makes those changes."

Wal-Mart spokesman Marty Heires said the retailer was not at present considering to stop announcing its monthly same-store sales.

Home Depot could not immediately be reached for comment.

Innocents Abroad?
Wal-Mart's Global Sales Rise As It Learns from Mistakes -
No More Ice Skates in Mexico
By Geraldo Samor – Cecilie Rohwedde and Ann Zimmerman – Staff Reporters
The Wall Street Journal
May 16, 2006

When Wal-Mart Stores Inc. started expanding abroad in the early 1990s, it offered a little piece of America to foreign consumers -- and that was the problem.

In soccer-mad Brazil, it heavily promoted golf clubs. In sweltering Mexico, it pushed ice skates. In stolid Germany, its clerks bagged and smiled, prompting suspicion that they were flirting.

Now, there are signs that Wal-Mart has learned from its mistakes and is becoming a more formidable global retailer by buying successful local chains, hiring local executives and learning local tastes. Even so, it still faces some large hurdles, the result of facing off against the world's best retailers.

Wal-Mart's international operations account for 20% of the company's total sales and are the fastest growing business at the retailer, based in Bentonville, Ark. Indeed, if Wal-Mart's international business were an independent chain, it could end the year as the world's fourth largest retailer, following Wal-Mart's U.S. operations, Home Depot Inc. and Carrefour SA, respectively, says Michael Exstein, a Credit Suisse Group analyst, who estimates Wal-Mart's international revenue will increase to $78 billion in the fiscal year ending Jan. 31, 2007, from $63 billion in fiscal 2006.

Wal-Mart, which will report earnings today for its quarter ended April 28, said earlier this month that it anticipates a 12% rise in sales to $81.5 billion, fueled partly by a 24% surge in sales from its international operations versus a 9.9% gain by its U.S. operations.

In Mexico, Wal-Mart is the nation's No. 1 retailer based on sales, and trades as a separate company, Wal-Mart de Mexico SA. In Brazil it has jumped to No. 3 from No. 6 in the past two years through acquisitions. Those two markets account for 22% of the company's international sales. In Great Britain, which accounts for 45% of foreign sales, the company has had a tougher time but is taking actions to fix its problems. The same is true in Germany and Japan.

"We're not going to win on every one of them," Wal-Mart's chief executive officer, Lee Scott, said recently, referring to the 15 countries where the company operates. "There is no secret to our formula where we just walk in, hang a sign on the door and, 'My goodness, there's a Wal-Mart here, line up!' It doesn't work that way."

Wal-Mart's challenges have varied by country. In Germany, it hit a trifecta of trouble with employees, customers and competitors. A lawsuit by workers forced Wal-Mart to change part of an ethics manual that prohibited romantic relationships between supervisors and employees. Although those rules are commonplace in the U.S., German workers saw them as violations of personal rights.

German consumers rejected American features such as grocery bagging or cashiers who are asked to smile. And Wal-Mart flopped in competition with Aldi Einkauf GmbH, a so-called "hard discounter" with a limited assortment of private label products at rock-bottom prices.

Hard discounters account for some 40% of food retail sales in the country, compared with Wal-Mart's share of just 2%. "Wal-Mart came to Germany positioning itself as the cheapest, but that spot is already taken by Aldi," says Wolfgang Twardawa, an analyst at GfK, a market-research firm based in Nuremberg, Germany.

Although Wal-Mart is operating in the red in Germany, the company has worked on lowering costs and ingratiating itself with suppliers and shoppers. For instance, it sponsored events like "Singles Shopping Nights," at which customers could look for love along with their groceries and were treated to sparkling wine and oysters at the store. The evenings were so popular that Wal-Mart still hosts them occasionally and has organized them at its stores in other countries.

Wal-Mart has had better success across the English Channel, with its Asda subsidiary, which it purchased in 1999. Asda was long the least expensive of the United Kingdom's large grocery chains, putting Wal-Mart in a familiar role. Rivals have made inroads by slashing prices and beating Asda in offering new products, such as gourmet-style ready-to-eat meals and a wide selection of organic produce. Tesco PLC, the country's biggest retailer, compares its prices with Asda's on the Tesco Web site.

But Asda is adjusting to the tougher competition. With zoning laws obstructing the opening of new large supercenters, Asda is opening smaller stores, as its rivals have done. It is also cutting prices further and upgrading its fresh food selection.

In Japan, Wal-Mart has also faced competition. Even before Wal-Mart entered the country in 2002 by buying a minority stake in the grocery and apparel chain Seiyu Ltd., competitors such Aeon Co. sent employees to visit Wal-Mart stores in the U.S., South Korea and China. Aping the Wal-Mart formula, Japanese retailers slashed prices and opened single-story supercenters with acres of parking -- a novelty in a country used to cramped, multistory shopping.

Earlier this year, Wal-Mart raised its stake in Seiyu to a majority position so it can fully control operations. It is remodeling old Seiyu stores and adding the computerized inventory tracking systems that have long let Wal-Mart keep shelves filled in the U.S. without creating costly inventory.

When Wal-Mart started its foreign operations in 1991, it didn't set specific goals, and the company seemed to figure that what had worked for it in the U.S. would work overseas. In Mexico, it did. There, it bought Cifra SA, the country's largest discount retailer and converted Cifra's stores to U.S.-style supercenters featuring cut-rate prices.

After some cultural flubs -- selling ride-on lawn mowers in a place that lacks American-style suburbs, for instance -- it learned what shoppers wanted. For the thousands of Mexicans who travel to the U.S. for work or even a weekend shopping spree, Wal-Mart was a slice of the U.S. in Mexico.

At a Wal-Mart in the Mexico City area, Raul Perez loads his shopping cart with Huggies diapers, cartons of milk and other necessities for his young family. "We often end up buying more than we came for, there's so much to choose from," he says.

Wal-Mart tried the supercenter model in Brazil, too, when it opened its first stores there in 1995, but it didn't fare well initially. That's because Brazilians like to shop in their neighborhoods, not jump in a car for a trip to the suburbs where Wal-Mart was located. In the past two years, the company has learned that lesson, aided by senior managers that include 16 Brazilians. The supercenters remain but Wal-Mart also has purchased chains with an assortment of formats, including Balaio neighborhood stores and Magazine general-merchandise stores, which don't sell food.

Wal-Mart also learned it had to devote far more square footage to food items than it does in the U.S. because Brazilians are used to buying fresh meat and fish from supermarkets. While U.S. customers get their fish and meat already wrapped, Brazilians like to point to the steak they want and order it cut on the spot. At a Wal-Mart store on the outskirts of Sao Paulo, customers can pick among 37 different types of fresh fish.

Wal-Mart also showed it can adapt in China, which is currently a tiny market for the company. There it sells live turtles and snakes -- popular Chinese dinners -- and tries to lure shoppers coming to stores on foot or bicycle by offering free shuttle buses and home delivery for refrigerators and other large items.

As Wal-Mart ponders new markets, it's doing its cultural homework. Michael Duke, head of Wal-Mart International, recently spent a few days in India, where foreign retailers are barred from operating, to understand Indian customers once investment barriers fall.

"They showed me what food was in their kitchen," says Mr. Duke. "They showed me what little grain they had. They showed me what was in their bathroom. One family of three generations lived in three rooms. There was no refrigerator, but there were three TVs. You can't lead a business without knowing customers personally."

Historians and Fans Are Racing to Catalog Homes Sold by Sears
By Sara Schaefer Munoz - The Wall Street Journal
May 15, 2006

Modest Kit-Built Houses Face Threat From McMansions;
Braving Snake, Poison Ivy

Marilyn Raschka spends many of her weekends driving around unfamiliar neighborhoods, knocking on doors and talking her way into strangers' basements. Once downstairs, she breaks out her flashlight and shines it along exposed beams, hunting for a letter and some numbers that are each no bigger than a thumbprint.

The 61-year-old resident of Hartford, Wis., is part of a small cadre of historians and passionate amateurs on a mission to identify and protect homes made by Sears, Roebuck and Co. About 70,000 to 100,000 of them were sold through Sears catalogs from 1908 to 1940. Distressed that the houses are falling victim to the recent boom in teardowns and renovations, their fans are scouring neighborhoods across the country, snapping pictures and sometimes braving snakes and poison ivy to poke around basements and attics for the telltale stamps that mark the lumber in most of the catalog homes. Because people can be shy about the state of their basements, Ms. Raschka brings along photos of her own messy cellar to persuade them to let her in.

Precut houses ordered from a Sears catalog were shipped by boxcar in 30,000 pieces -- including shingles, nails and paint -- and assembled by a local carpenter or by the buyers themselves. Styles ranged from the elaborate, nearly $6,000 Magnolia, to the three-room, no-bath Goldenrod, sold in 1925 for $445. (Outhouses sold separately.) One of the larger Sears models, constructed in Takoma Park, Md., sold last year for about $900,000, according to a local real-estate agent.

The homes caught on as the U.S. population grew and Americans began to move away from crowded city centers. Their popularity also was driven by the rise of company towns. In Carlinville, Ill., for example, Standard Oil ordered homes for its mine workers, 152 of which are still standing.

Sears also encouraged sales to families with steady wages but little in savings by financing up to 100% of some of the homes. But many homeowners were forced to default during the Depression, and sales came to an end in 1940.

Like some of the die-hard hunters, Ms. Raschka herself lives in a Sears home, a 1928 Mitchell model. "My passion is to find my house's long-lost sisters and brothers," she says.

Some Sears-home buffs are like bird-watchers, seeking a feeling of accomplishment from spotting a rare style and matching it to one of the hundreds of examples in old Sears catalogs. Nostalgia is a big part of it, too: Interest in the homes, many of which are bungalows and other modest styles, is partly a backlash against the wave of supersized subdivisions and the cropping up of so-called McMansions in many old neighborhoods.

The mail-order houses, many of which had big porches and were made from high-quality materials like early-growth cypress, were less expensive than architect-designed houses at the time, and were often all working-class people could afford. Because they were typically a family's first home -- and because they were often a do-it-yourself project for buyers -- the houses, enthusiasts say, are emblematic of the American dream.

National preservation groups haven't made Sears homes a priority. It's unclear how many are listed on the National Register of Historic Places; just being a mail-order home in itself won't qualify a structure, says a register spokeswoman. The National Trust for Historic Preservation considers the homes historically important, says Midwest Director Royce Yeater, but "there are just so many."

The possibility that thousands of Sears homes are still standing around the country has only further piqued the curiosity of buffs, keeping them on the lookout for the so-called "kit" homes. The blitz of teardowns in neighborhoods across the country in recent years has added a sense of urgency to their quest.

Dale Wolicki, a property consultant in Bay City, Mich., keeps several milk crates of house plans in his car at all times in case he spots a match while on road trips for work. Donna Bakke, a Cincinnati social worker, has enlisted the help of her Girl Scout troop, which has studied pictures of Sears homes, in checking out neighborhoods. "They can spot about a half-dozen models at 100 paces," she says. Returning from canoe trips, "they don't even blink if I tell them we're taking a detour."

In the guide she published, "Finding the Houses That Sears Built," Rosemary Thornton warns that "some homeowners become quite upset when they discover someone is parked outside, staring at their home," and suggests leaving the car running in case you need to leave in a hurry. There's a section in her book titled "Law Enforcement Officials" that says, "Police don't care about Sears homes and when you're explaining,...less is more."

It's difficult to know how many Sears homes are left. Sears doesn't have sales records, and while interest in catalog homes is growing, many people still don't know they are living in one. In addition, identifying a Sears isn't like spotting a steel-paneled Lustron, the ranch houses built to ease the housing shortage after World War II. The hundreds of styles Sears offered varied widely, and many of the homes have been altered over the years. Further complicating matters, a handful of other companies, such as the Aladdin Co., of Bay City, Mich., and Gordon-Van Tine Co., of Davenport, Iowa, produced mail-order homes closely resembling Sears models.

Even if a house does match a picture in an old Sears catalog, it could be a later rip-off by a local builder -- or a popular style that Sears emulated in its designs. Inside the house, hints like Sears-labeled woodwork can also be misleading, because Sears sold such things separately. One way to tell: a stamp of a letter and a three-digit number on beams, which were marked to facilitate assembly.

Measuring the space between studs, or support posts, can be another clue in verifying a Sears home, especially in an area with a lot of Sears imitations, according to Kathryn Holt Springston, a 53-year-old semiretired social historian with the Smithsonian Institution. The studs of older non-Sears houses in the Washington, D.C. area are often 22 to 24 inches apart, she says, compared with about 15 inches in Sears models. When she spots what she thinks might be a Sears home in the Washington area, she asks to be let into the house, and then straps on a headlamp and looks for exposed studs in the attic, closets and basement. Ms. Springston has ripped up floorboards and sometimes uses a metal detector to find nails in studs in the walls. She says she crawled through poison ivy in one abandoned home and once encountered a snake in someone's basement. (She measured anyway.)

Ms. Springston says she once held a memorial service for a Sears home that was being torn down, a 1919 Sunlight model demolished several years ago in Arlington, Va., after the owner was forced to sell. "We said, 'Bless you, house.' "

Many people who live in the homes have grown accustomed to the handful of strangers who show up each year asking to see the basement or attic. Clarice Hausman, whose 1920s-era Westly sits off a state road in central Illinois, keeps pictures of the house's stamped beams near the door. "You can't just let everybody in," she says.

Former Sears Canada CEO slams parent's 'cannibalism'
'Don't know anything'
By Hollie Shaw - Financial Post – Canada.com
May 10, 2006

A former chief executive of Sears Canada Inc. lambasted the management of corporate parent Sears Holdings Corp. yesterday, accusing the executives of "corporate cannibalism" in their bid to take the retailer private.

"They don't know anything about retailing," Dick Sharpe, who served as CEO and chairman of the Canadian department store's board from 1979 to 1989, said of hedge fund wizard Ed Lampert, chairman of the U.S. retail giant, and Alan Lacy, chairman of Sears Canada and vice-chairman of Sears Holdings.

"They are extracting cash out of the business," Mr. Sharpe added, criticizing a decision to keep capital expenditures low to improve earnings before interest and taxes, which means the retailer spends less money on store upkeep.

"[They] are causing the corporation to eat its own muscle and once you do that, it's going to die."

Mr. Sharpe also said he was relieved of his position as honorary director of the company last year after bad-mouthing Mr. Lacy, whose hand he refused to shake yesterday. Bill Turner, another long-time former senior executive, also expressed his reservations about the privatization.

The moment capped off an oddly brief annual general meeting, which ended after acting president Dene Rogers gave a gloomy overview of Sears Canada, mapping out its weakness over the past five years.

"The financial performance has in general declined," said Mr. Rogers, a Sears Holdings executive who replaced outgoing chief executive Brent Hollister yesterday.

Sales of hard goods have slid 2.1% since 2001, and soft lines revenue, including clothing and bed linens, declined 3.6%, he noted.

Since Sears merged with Kmart Canada in 1998 to create Sears Canada Inc., Mr. Rogers said, the Toronto Stock Exchange has risen 33%, but the retailer's shares have declined 12%.

The shares have doubled in value since rumors began to surface last year that Sears Holdings was interested in buying up the remaining 46% of the company it did not own.

Board member William Crowley, chief financial officer at Sears Holdings, said there is "no magic bullet" solution to fix Sears Canada, adding management doesn't see a lot of ways to create value after the $2.2-billion sale of Sears Canada's credit card division last year to JPMorgan Chase & Co.

"Sales have been declining, gross margins are declining," Mr. Crowley said. "How do you make as much money as you can out of a business where your competitors are building stores at the rate that they are?

"It is really hard to succeed, and if anyone else thinks it's so great to compete against Wal-Mart and Lowe's and Home Depot, look at Hudson's Bay Co. There were no bids for HBC. That tells you something about the interest of being a retailer in that market."

Sears Holdings announced its desire to buy out its Canadian unit in early December for $16.86. Last month, the U.S. retailer sweetened the bid to $18 to convince two large shareholders to tender. A band of remaining minority shareholders, who own or control about 7.7% of the outstanding common shares, is waging a public relations battle against the offer and believes the retailer's stock is worth about $42 to $46.

Led by New York hedge fund Pershing Square Capital Management LP, the group has asked the Ontario Securities Commission to investigate Bank of Nova Scotia's role in the transaction, arguing the bank's role as advisor to Sears Holdings while agreeing to vote its shares in support of the privatization bid poses a conflict. The group also believes Sears Canada should be merged with rival department store chain HBC.

Mr. Crowley had no comment on Pershing's efforts yesterday. "We're very confident that we'll close [the privatization] in December," he said.

Sears Holdings has not talked with HBC owner Jerry Zucker about buying the retailer, he said.

"I don't see [the two merging]," he said. "See how many malls have both [Sears and The Bay] in the same mall. Does that make sense? What are you going to do, close half the stores?"

The drama has succeeded in keeping Sears Canada's share price above the bid. Sears Canada shares have been trading at or above $19 in the last week.

SEARS CANADA INC

Ticker: SCC/TSX

Close: $19.66, up 16 cents

Volume: 102,920

Avg. 6-month vol.: 434,008

Rank in FP500: 47

Microsoft and Google waging 'war for talent'
By Steve Lohr - The New York Times – International Herald Tribune
May 10, 2006

NEW YORK Microsoft is the reigning powerhouse of computing, and Google is the muscular Internet challenger. On each side, the battalions are arrayed - executives, engineers, marketers, lawyers and lobbyists. The spending and rhetoric are escalating, as the realms of desktop computing and Internet services and software overlap more and more.

For each, it seems, the other passes what Andrew Grove, a founder and former chairman of Intel, calls the "silver bullet test" of strategic competition: "If you had one bullet, who would you shoot with it?"

How the confrontation plays out could shape the future of competition in computing and how people use information technology.

Do the pitched corporate battles of the past shed any light on how this one might turn out?

Business historians and management experts say the experience in two of the defining industries of the 20th century, mass-market retailing and automobiles, may well be instructive. The winners certainly scored higher in the generic virtues of business management: innovation, execution and leadership.

But perhaps even more significantly, those who came out on top, judging from U.S. corporate history, had two more specific attributes. They were the companies, according to business historians, that proved able to adapt to change instead of being prisoners of past success. And in their glory days, these corporate champions were magnets for the best and brightest people.

"One area where Microsoft and Google are really competing head-to- head now is in the war for talent," said Richard Tedlow, a historian and professor at Harvard Business School. "Historically, the company that won the war for talent won the war."

Tedlow points to Montgomery Ward as a company that lost talented managers to its rival Sears, and then lost its way. The crucial defection, Tedlow said, was Robert Wood, a former army general who joined Montgomery Ward in 1919 as general merchandise manager.

Even in the army, Wood was a close reader of the Census Bureau's Statistical Abstract of the United States, an annual tracking of social and economic conditions. Wood became convinced America was at the beginning of a huge population shift from rural regions to urban areas. That meant, he understood, that the mail-order giants like Montgomery Ward and Sears needed to move from being catalogue retailers serving a dispersed market to department store merchants with stores in city and suburban population centers.

Sears, as a company, grasped that fundamental change in the marketplace in a way that initially Montgomery Ward did not, Tedlow said. In 1924, Wood left Montgomery Ward to join Sears, and he later recruited others. In 1945, Wood, then the chairman of Sears, made another smart call on economic trends. The postwar years, he decided, would bring a long expansion, as pent- up consumer demand from the war years was unleashed.

So Sears embarked on a national store-building binge. His counterpart at Montgomery Ward, Sewell Avery, made the opposite bet, keeping money in the bank to prepare the company for a postwar depression, which he was convinced was around the corner.

Over the next several years, sales at Sears doubled, while Montgomery Ward's shrank 10 percent. "Losing Robert Wood was catastrophic to Ward," Tedlow said.

In its recruiting competition against Google, Microsoft insists that it fares quite well over all. But there have been some high-profile defections to Google of leading engineers, who said they preferred Google's technological direction and corporate culture.

The most prominent was Kai-Fu Lee, a star computer scientist and manager. Lee not only established Microsoft's research labs in China, but he is also an expert in areas like natural language and speech-recognition technologies - important ingredients in Internet search now and in how people will interact with computers in the future.

Last year, when Lee left Microsoft, the company sued Google and Lee. Microsoft claimed, under a Washington State law, that Lee had violated a noncompete clause in his employment contract and misused inside information in going to work for Google. The suit was settled in December.

"What does it say about a company when it sues when someone leaves?" Tedlow asked rhetorically. "It makes Microsoft sound like a prison."

In business, forever tends to last about five years, a decade or two at most. So Sears prospered for a time and celebrated its success by building the Sears Tower in Chicago in the 1970s. Yet even from a height of 110 stories, Sears failed to see Wal-Mart coming. Wal- Mart brought the next revolution in retailing with its shrewd use of computer technology to track buying trends and orchestrate suppliers to become a hyperefficient, low-cost merchant.

The auto industry presents a sobering history of past-success syndrome. Henry Ford's Model T, introduced in 1908, famously made the automobile affordable, helped along by his pioneering assembly-line production, which started in 1913. Ford's laser-like focus on efficiency drove the cost of a Model T from $850 when it was introduced down to $275 by the early 1920s.

But cost and efficiency was all he focused on. The design was not updated, and the color selection remained black and only black. Eventually, the single- mindedness caught up with the company. In 1925, Ford's share of the American market was falling, to 45 percent from 57 percent two years earlier.

By then, Alfred Sloan Jr., the managerial maestro of Detroit, was president of General Motors and its sales were surging.

"Henry Ford was so in love with his brilliant idea that he refused to change," said John Steele Gordon, a historian and author of "The Business of America" (Walker, 2001).

General Motors was well on its way to becoming the world's largest carmaker. Yet as early as the 1950s, the Japanese challenge to Detroit's auto supremacy was quietly getting under way. The architect of the Japanese ascent was a production engineer, Taiichi Ohno, who worked at Toyota. In 1950, Toyota manufactured 13,000 cars, barely a day's production for GM.

Ohno had to devise a way to efficiently manufacture a variety of cars in small production runs. Ohno turned that adversity into an advantage, using rapid tooling changes, constant quality improvements and just-in-time parts delivery to steadily improve their cars.

Once again, the corporate giant was complacent and late to see a fundamental shift in its industry.

"GM did not take Toyota and the Japanese seriously until the 1980s," said Michael Cusumano, a professor at the Sloan School of Management at the Massachusetts Institute of Technology and author of "The Japanese Automobile Industry" (Harvard University Press, 1986). "By then it was really too late."

History, then, suggests that past success is often an anchor holding a company back, and that Microsoft is at risk from the Google challenge.

"The wind is really behind Google, and Microsoft's main tool for navigating the future is the rearview mirror," said Paul Saffo, a director of the Institute for the Future, a forecasting consultancy in Silicon Valley, California.

Still, the incumbent-challenger narrative - which portrays the incumbent as an endangered species - might not apply this time. Microsoft has adapted nimbly to big challenges before.

Apple Computer introduced point- and-click, graphical computing with the Macintosh in 1984, but Microsoft caught up and became dominant on the desktop with Windows.

In the mid-1990s, Netscape Communications posed a threat because the Internet browser might undermine the importance of Windows. Microsoft came up with its own browser and rebuffed that challenge, partly with tactics that violated antitrust laws, a U.S. appeals court ruled.

"Microsoft has responded every time in the past," said Cusumano, who is also the author of two books on Microsoft.

Now comes Google. It is offering or developing as free Web-based services e-mail, word processing and other programs that could replace Microsoft desktop programs and eat into Microsoft's lucrative software business. But that is by no means certain.

Google now makes virtually all its money by selling advertisements linked to its enormously popular Internet search service. Microsoft and Yahoo are desperately trying to close the gap with Google, which dominates Internet search and ad sales.

If Google stumbles, the company will be seen as having been unable to move beyond a single huge success.

Since the future is so often the pattern of the past with some twist, what is the expert view?

"I'm a historian," said Tedlow of Harvard. "Ask me in 10 years and I'll tell you why what happened was inevitable."

Sears Canada Annual Meeting Light On Optimism
By Andy Georgiades – Dow Jones Newswires - Wall Street Journal Online
May 9, 2006

TORONTO -- Sears Canada Inc. (SCC.T) says its sales are in decline and competitive pressures are getting worse.

That message, delivered by the retailer's new executive team at what could be its final annual meeting Tuesday, was in sharp contrast to the positive tone put forth by management in previous years.

Sears Canada is embroiled in a takeover battle with its parent, Sears Holdings Corp. (SHLD), whose C$18-a-share bid has allowed it to lock up about 70% of the outstanding shares. The bid expires in August, and Sears Holdings expects to complete a going-private transaction before the end of the year.

Instead of being told of the company's new marketing and merchandising efforts, in his first official day on the job acting president Dene Rogers said sales have declined 2.4% a year since 2001 and margins are also in a downward trend. In addition, revenue in hardline and softline products is also in decline, with the only exception being appliances - a business with falling margins.

He also noted that competition is intensifying, particularly from Wal-Mart Stores Inc. (WMT) and Home Depot Inc. (HD). The arrival of home-improvement retailer Lowe's Cos. (LOW) in Canada next year won't help matters. "Sears Canada is facing specialized stores, of a larger scale and larger square footage," he told shareholders.

Rogers said minority shareholders unhappy with the offer price have various options available, including the assertion of dissenters' rights, but he noted that this process could take up to two years and shareholders aren't guaranteed a better price than C$18 a share.

There were no questions asked during the period for shareholder questions.

After the meeting, William Crowley, chief financial officer of Sears Holdings, noted that 63% of the minority shareholders voted for the eight-member board, which consisted of five Sears Holdings executives. That shows him that most of the minority shareholders are behind Sears Holdings, giving the company confidence it will be able to take Sears Canada private in December.

Crowley said there's no magic bullet that will solve Sears Canada's problems, and that the department-store business is in a tough spot right now. As evidence, he pointed to department-store operator Hudson's Bay Co., whose auction process failed to result in an alternative to the takeover offer from its largest shareholder, Jerry Zucker.

Crowley said he personally doesn't see a merger of Sears Canada with Hudson's Bay as the answer, and added that there have been no discussions with Zucker about combining the retailers.

Sears Canada set to go private, but ex-CEO calls deal 'corporate cannibalism’
By Rita Trichur - The Canadian Press
May 9, 2006

TORONTO (CP) - Sears Canada Inc. (TSX:SCC), the target of a going-private move by its U.S. parent firm, told investors Tuesday it doesn't expect that a spat with a group of activist shareholders will delay the transaction.

But those assurances came as a former chairman and CEO, Richard Sharpe, called the proposed $908-million buyout by Sears Holdings Corp. (Nasdaq:SHLD) "corporate cannibalism."

In one of his first duties as the retailer's new acting president, Dene Rogers announced that Sears Canada will hold a special meeting of shareholders Nov. 30 and expects to go private shortly thereafter.

"The expectation is that on Dec. 15 we will begin the process of privatization," Rogers told shareholders attending what is likely to be the firm's last annual general meeting as a publicly traded company.

He warned that minority shareholders who choose to hold their shares and seek dissenters' rights are facing an uncertain process.

"It could be a lengthy process of up to two years or more," said Rogers, who is replacing president and CEO Brent Hollister.

Chicago-based Sears Holdings, already Sears Canada's biggest shareholder, is offering the Canadian subsidiary's minority shareholders $18 a share in its buyout offer.

However, it is facing resistance from some minority investors - including Hawkeye Capital Management LLC, Knott Partners Management LLC and Pershing Square Capital Management LP - who have threatened to take legal action against Sears Holdings.

At Tuesday's meeting, another voice was added to that chorus of dissent. Ex-CEO Sharpe told reporters he refused to shake hands with Alan Lacy, who is a Sears Canada director and vice-chairman of Sears Holdings, because of his strong opposition to the offer.

"I believe that the whole approach has been corporate cannibalism, just devouring the assets of this company," Sharpe said. "None of them really know anything about retailing."

Sears Canada's shares continued to trade above the offer price Tuesday, gaining 49 cents to $19.99 on the Toronto Stock Exchange.

International Flavors Chairman Retires,
Martinez Interim Chairman and CEO
HoustonChronicle.com – The Associated Press
May 9, 2006

NEW YORK — International Flavors & Fragrances Inc., creator and manufacturer of artificial flavors and fragrances, on Tuesday said chairman and chief executive Richard A. Goldstein retired as expected, after the company's annual shareholder meeting.

In January, the company said Goldstein would retire in May and hired executive search firm Spencer Stuart to look for a successor, a process that is still ongoing.

The company named Arthur C. Martinez, the company's lead director, as interim chairman and chief executive. He was previously chairman and chief executive of Sears, Roebuck and Co.

International Flavors & Fragrances Inc. creates flavors and fragrances for consumer products ranging from soaps and detergents to food and drinks.

IFF shares fell 26 cents to $35.78 during afternoon trading on the New York Stock Exchange.

Deadline Looms For New Drug Benefit
By Sarah Rubenstein – Wall Street Journal
May 9, 2006

With Six Days Left Before Penalties Kick In, Medicare, Insurers Make Final Enrollment Push

For anyone still considering the Medicare drug benefit, the next six days are crunch time.

More than six million eligible senior citizens and disabled people have yet to sign up for the federally subsidized prescription-drug coverage, by some estimates. After Monday, May 15, most of those who haven't will face a financial penalty if they sign up later. The penalty -- designed to encourage both healthy and sick people to sign up and share in the cost -- permanently increases the premiums that latecomers pay. But despite a months-long effort to inform people about the drug benefit, there's evidence that many still aren't aware the deadline is looming.

The Centers for Medicare and Medicaid Services says that the enrollment pace has remained consistent at about 400,000 a week. To get even more on board by Monday, government agencies and advocacy groups are stepping up their outreach. Insurance companies that provide the policies, including Aetna Inc., Cigna Corp. and Humana Inc., are emphasizing the deadline in their advertising and gearing up for a last-minute push. But millions of people are still weighing the decision, amid conflicting reports about the experiences of those who already signed up.

The benefit, which began Jan. 1, aims to fill one of the biggest holes in Medicare with private prescription-drug policies that are subsidized by the government. Some beneficiaries who have signed on are seeing significant cost savings on their prescriptions, but some also say they've encountered coverage glitches and confusion over choosing a plan and figuring out what drugs are covered and at what cost.

The government recently addressed one common complaint -- that insurers could drop medications from their lists of covered drugs during the year. Since most consumers have only one opportunity a year to change plans, people feared they could be locked into a plan that no longer paid for their medicines. Now, under a policy issued in late April, insurers that drop drugs or add restrictions in most cases have to exempt enrollees who currently take them.

Given that such kinks are still being worked out, Democrats in Congress have pushed hard to remove the financial penalty for late enrollment or push back the deadline, and some Republicans also are supportive. The Bush administration has opposed changes to the deadline or penalty, at least before May 15. But in a major shift in policy, Medicare officials said yesterday that they wouldn't require late-enrollment penalties from low-income beneficiaries who qualify for extra subsidies (people with less than about $15,000 a year in income for an individual, and assets of less than $11,500). The government already had decided to allow that population to enroll in the program after May 15.

SIGNING UP

Ways to enroll in a drug policy:
• Directly with an insurer -- online or over the phone

• With help from Medicare, at www.medicare.gov <http://www.medicare.gov/> 2 or 1-800-Medicare

• Through an insurance agent or at an enrollment event

• Mail an application to your chosen insurer, postmarked on or before May 15

Note: At the end of the day on May 15, when the clock passes midnight, local time, the enrollment period is over. There may be exceptions -- for example, for people who are still waiting on hold.

Several bills regarding the deadline and penalty have been introduced in the House and Senate, and supporters of the changes may decide to bring them as amendments to other legislation. Medicare actuaries have estimated that fewer people would sign up if there were no deadline. It's unclear whether the administration will revisit the issue after the deadline passes. The higher the enrollment by the deadline, the less likely that is.

Road Trips

Medicare and its partners are holding more than 1,000 enrollment events around the country over the next week -- including visits to more than 40 cities with the agency's "Mobile Enrollment Center" buses. The agency also says it has quadrupled the server capacity for the Medicare.gov Web site since enrollment began in November.

The National Council on Aging, one of the groups working to encourage enrollment, is hosting or participating in nearly 200 events in the final week. Recent events at the Mall of America in Bloomington, Minn., and a Nascar race in Richmond, Va., were meant to persuade children of Medicare beneficiaries to help their parents sign up. The NAACP has asked churches to hold a round of enrollment events on the Sunday before May 15. United Health Foundation, a non-profit funded by insurer UnitedHealth Group Inc., has been hosting educational events with the Rev. Jesse Jackson's Rainbow Push Coalition, including one in Cleveland on May 15.

Insurance companies have been aggressively promoting the benefit, eager to tap into this pool of potential customers. Cigna early this month announced that drug-benefit enrollees can use the "Healthy Rewards" program available to other Cigna customers, which provides discounts on vision care and other services. Terri Swanson, vice president of the Cigna unit that provides products for seniors, says Healthy Rewards won't cost extra, "but it is an added benefit."

For the final two weeks, Aetna increased its call-center staffing by 10% on weekdays and has doubled it for the weekends. UnitedHealth Group since May 1 has extended the hours of its call centers to 24 hours a day, seven days a week. WellPoint Inc. is doubling the staffing in its call centers. And Cigna, which has seen a 10% increase in calls since the beginning of May, has increased its call-center staffing accordingly, the company says.

Steve Brueckner, vice president of senior products for Humana, says the company is now stressing the deadline in its advertisements but hasn't planned a marketing surge for the final week, for fear of drawing more inquiries than it can handle. "It's very hard to staff for all the peaks," he says.

In all, about 35.8 million Medicare beneficiaries now have drug coverage, according to the government's latest estimates as of April 18. About 8.1 million signed up on their own for a Medicare plan. The rest include low-income Medicaid beneficiaries, who were automatically enrolled, or people who already had drug coverage that was at least as good as Medicare's -- often through employee retirement benefits.

With a total of about 42.5 million seniors and disabled people covered by Medicare, that would leave over six million still without a drug policy. Mark McClellan, administrator of CMS, notes that given the steady pace of enrollment, the number of people covered has gone up "considerably" since the April report, though the official estimate has not yet been updated.

Putting Off the Decision

Some latecomers have been overwhelmed by the sheer number of choices -- dozens of plans in some regions. Others have heard complaints about the limitations of the coverage. Some, especially healthier people who take few or no drugs, are reluctant to start paying for coverage that they don't need. For most of those who don't have drug coverage at least as good as Medicare's and decide down the road that they want to sign up, there will be a penalty.

An April Kaiser Family Foundation poll of 517 seniors found that 44% of them didn't know the date of the deadline, and 47% were unaware that there even was a penalty.

Here's how it works: For every month past the deadline that you go without coverage, add 1% to your premium once you do finally sign up. That 1%, however, is not based on the premium of the plan you choose. Rather, it's from the national average premium offered by insurers in the year your coverage starts. So you can't keep the penalty low by choosing a cheaper policy.

In a report last week, Medicare's trustees projected that the average monthly premium would be $35.86 in 2007 -- though the final number likely won't be known until fall. That means a 1% penalty for next year would be about 35.9 cents.

For those who miss the May 15 cutoff, generally the next opportunity to sign up will be later this year -- Nov. 15-Dec. 31, with coverage beginning in January. So assuming you enroll this fall, your penalty will total 7% -- accounting for seven full months you went without coverage between May and January. That would amount to a $2.51-a-month penalty next year on top of the premium of the plan you choose.

Rising Penalties

A penalty will continue for all the time that you are covered by a drug plan. It is adjusted each year and will presumably rise as the national average premium increases over time.

For someone who waits until fall 2009 to sign up, Medicare's trustees estimated the average monthly premium would be $42.39 in 2010, your first year of coverage. According to that projection, your penalty would be about $18 a month. (Take 1% of $42.39, and multiply that by 43 for the 43 months without coverage.)

The penalty is roughly similar to the one charged people who don't sign up when they're first eligible for Medicare Part B, which covers physician services and outpatient care.

--Sarah Lueck contributed to this article.

Dollar General hires former Sears exec
Nashville Business Journal
May 8, 2006

Dollar General Corp. has hired a former Sears merchandising executive as its senior vice president and general merchandise manager of seasonal, home and apparel goods.

James Thorpe will lead the buying team in the Goodlettsville-based discount retailer's non-consumable goods categories. Along with Rita Branham, a Dollar General (NYSE: DG) veteran who was promoted in March to senior vice president and general merchandise manager of consumables, Thorpe will help develop and direct merchandising strategies for the company.

Both Branham and Thorpe report to Beryl Buley, division president of merchandising, marketing and supply chain. Thorpe starts with the company May 15. Thorpe was a senior vice president and general merchandise manager at Sears Holding Corp. for 15 years. During his tenure, he served as vice president of business development and was a divisional merchandise manager of consumer electronics, appliances buyer and commercial sales manager.

In April, Dollar General saw a 13.6 percent rise in sales compared to the same period last year and same-store sales increased 6.9 percent. In a release announcing the month' results, company officials noted that sales were heavily skewed toward lower margin, highly-consumable items and that sales in the higher-margin home and apparel departments have been below company projections.

Dollar General operates more than 8,000 stores nationwide. At about 1:30 p.m., shares of the company were trading at $17.15, up 0.1 percent on the day. Their 52-week range is $16.47 to $22.50.

Hard to check out Sears' line to profits
By Andrew Leckey, a Tribune Media Services columnist – Chicago Tribune
May 7, 2006

Q. I'm pleased with my shares of Sears Holdings Corp. but unsure of the company's strategy. What is your opinion?

K.V., via the Internet

A. The retailer, formed when Kmart bought Sears, Roebuck and Co. last year, has a fascinating plot line but no clear theme.

Chairman Edward Lampert, who brought Kmart out of bankruptcy three years ago, is a shrewd hedge fund manager with a grasp of assets and real estate. He has already amassed more than $4 billion in cash at the firm.

Lampert takes no salary, stock options or fees. Because he owns more than 40 percent of the company's stock, his own wealth is inextricably tied to stock performance.

Shares of Sears Holdings (SHLD) are up 28 percent this year following gains of 17 percent in 2005 and 313 percent in 2004. Lampert prefers to repurchase shares than pay dividends.

The retailer operates more than 900 Sears department stores, primarily in malls, and 1,400 Kmart stores. Sears Essentials stores located in converted Kmart locations are being renamed Sears Grand, with food and DVDs added to their merchandise.

Pro forma profits rose in the most recent quarter because of cost cutting, but sales were down. It faces stiff competition from the clearly focused discount chains Wal-Mart Stores Inc., Target Corp. and Kohl's Corp.

Although Lampert enacted cost controls and is beginning to remodel more stores and upgrade technology, no one is entirely sure of his longer-term intentions. He has offered no turnaround plan for reversing the company's eroding market share and says he does not intend to sell off large pieces of real estate, as many experts had predicted he would.

So, as Wall Street awaits a clearer signal, the consensus analyst rating of Sears Holdings shares is midway between "buy" and "hold," according to Thomson Financial. That consists of three "buys," two "holds" and one "underperform."

More intrigue: Martha Stewart, whose Everyday merchandise has been sold in Kmart for years, recently made a surprise announcement to add a line of home products in Macy's department stores to begin in fall 2007.

With the existing Kmart contract with Stewart expiring in four years and uncertain beyond that, Lampert has opted not to place Stewart merchandise in Sears stores. He has, however, put some popular Sears items such as Craftsman tools and Kenmore appliances in Kmarts.

Sears Holdings' earnings are expected to rise 28 percent this year versus the 12 percent predicted for the department store industry. Next year's projected 20 percent gain compares to 17 percent for its peers. The five-year annualized growth rate is expected to be 11 percent versus the 14 percent industrywide forecast.

Titans collide in battle for Sears Canada
By Andrew Willis - Globe and Mail, Canada
May 6, 2006

Much at stake in bitter and nasty takeover battle between two U.S. hedge fund wizards, ANDREW WILLIS writes

For two guys who just doubled their money on Sears Canada -- a $300-million score -- Jacques Chartrand and Claude Boulos can sure point to a lot of things wrong at the retail chain.

As the heads of Natcan Investment Management's $6.5-billion Canadian equity fund, the two money managers helped kick off the bitter takeover battle for Sears Canada by agreeing to sell their 9.7-million-share stake in the stores to its U.S. parent. Natcan headed for the exits in return for $16.86 a share, and was thrilled at the price. "Same-store sales keep falling. Canadians are going to the power centres, to big-box stores, so the traffic is going down at the malls where you find Sears," says Mr. Chartrand, ticking off challenges facing the venerable retailer. "Management has tried different approaches, nothing has worked, and they are a bit complacent. I mean, this has got to be the last North American retailer with its own fleet of trucks."

Given their pessimistic outlook, the Natcan team was all ears when they got a call last November from William Crowley, chief financial officer at Sears Holdings Corp., the U.S. parent of Sears Canada, and a partner in its controlling shareholder, ESL Investments, a $15-billion (U.S.) hedge fund run out of Greenwich, Conn., by billionaire Edward Lampert.

Backing up Mr. Crowley in presentations before the Sears Canada board, the Natcan executives had already helped push the $2.2-billion (Canadian) sale of Sears Canada's credit card division, and a subsequent $2-billion special dividend.

After three weeks of "tough, creative negotiations," Natcan agreed to sell its 9-per-cent stake -- acquired over two years ago for $150-million -- to Sears Holdings. That set the stage for the parent firm's offer for the rest of the company. The moment that bid was announced, there was a flood of investors who play on the theory that motivated buyers such as parent companies will invariably dig deep, and improve their opening bid to get a deal done. The most sophisticated of these players are known as arbs, or risk-arbitrage hedge funds.

"We got a fair price, plus protection if a second bid was made," Mr. Boulos says. "The arbs, they poured in because the statistics show that they can get a 10- to 15-per-cent bump in the bid."

The arbs drove Sears Canada stock over $18, where it has remained since December. In April, Sears Holdings did improve its offer to $18 and won support from other major investors, with Natcan also getting the sweetened price. But at that point U.S. hedge fund Pershing Square Capital Management LP went on the offensive.

After buying shares at around $18, Pershing began making strident arguments that the Canadian chain is worth up to $46 a share. On the phone with Montreal-based Natcan, you can almost hear a Gallic shrug as Mr. Boulos says: "They can always dream."

Just about every takeover of a Canadian subsidiary by a foreign parent -- and there have been more than a dozen in the past decade -- has seen tension between minority shareholders and the buyer. Occasionally, takeover bids don't get improved, and arbs get hammered, as they did when Rogers Communications dropped an offer for its wireless unit. Sometimes, the arbs clean up, as witnessed in the bidding war for Dofasco.

But no takeover has approached the flat-out nastiness of the Sears Canada fight. Hedge funds now control trillions of dollars and have become a major factor in capital markets around the globe. In Canada, we are finding out what happens when two of these powerful players go toe-to-toe.

This battle has grown so ugly that some combatants have withdrawn from the field. Sears Canada's independent directors quit the company rather than endorse the $18 offer. Said one source close to the board: "We just weren't going to be pushed around." On Tuesday, there will be a meeting at which Mr. Lampert is poised to get full control of the board.

Bystanders are being wounded. Sears Holdings unleashed its lawyers at Osler Hoskin & Harcourt to wring an apology from Ron Mayers, head of alternative strategies, at Desjardins Securities who questioned the takeover tactics. Regulators are also being summoned. When Pershing Square and its allies dragged the Ontario Securities Commission into the fray, Sears Holdings shot off a press release asserting the hedge funds are trying to "change the law to bail them out of their mistake."

Pershing Square, run by New York-based William Ackman, responded with its own release, labelling the assertions "vituperative." That means abusive. That nine-page missive also referred to Mr. Lampert as "Eddie." Friends can use the nickname. Coming from Pershing Square, sources close to ESL said it was an attempt to get under Mr. Lampert's skin.

The battle of egos, and thesauruses, is about more than chest-thumping by money managers.

Both Mr. Ackman and Mr. Lampert know their ability to do successful deals in the future -- to sway boards or raise money -- depends in part on burnishing their reputations as winners at Sears Canada. One source close to ESL said: "Lampert doesn't ever want to be known as a guy who rips off public shareholders. He's likely to be in Sears Holdings for a long time, and he plans to be in business a long time."

The rhetoric has grown louder as Pershing Square suffers setbacks. In fact, Mr. Ackman may eventually lose out because he was too clever for his own good.

Pershing Square directly owns 5.6 million Sears Canada shares, bought after the takeover was launched. But the fund also bought 5.3 million shares last year. To legally avoid paying about $20-million in Canadian tax, it entered into what is known as a swap agreement. That deal saw Pershing Square hand over its 5.3 million Sears Canada shares to a Florida bank, SunTrust Banks Inc. In exchange, the fund got a note that entitled it to any future increase in Sears Canada's share price.

The only downside to this swap was Pershing gave up the right to vote the shares. But in a number of interviews, Mr. Ackman said market convention would see those 5.3 million shares either voted his way, or at least not voted at all.

Executives at several Canadian bank-owned dealers, all of whom routinely do these tax-based transactions on dividend-paying stocks, say Mr. Ackman has it wrong. The owner of the shares must be free to vote as it sees fit, they say -- otherwise, the swap agreements might be considered tax fraud.

So who ended up owning the shares that Pershing Square swapped? That's a hotly debated subject. Pershing Square says the block ended up with Bank of Nova Scotia, an allegation both the bank and Sears Holdings deny. Mr. Ackman's best hope of torpedoing this takeover lies in attacking Scotiabank's role.

For what no one disputes is that the bank bought 4.5 million Sears Canada shares as part of a tax-driven trade. When Scotiabank decided to tender its big block to the $18 bid, it paved the way for Sears Holdings to squeeze out the remaining minority investors.

The other fact that's not in question is that Sears Holdings struck its deal with Natcan, then hired Scotiabank's investment dealer arm, Scotia Capital, as adviser on its takeover offer. Sears Holdings sources say they had no clue the bank owned Sears Canada shares, and point out that they also interviewed Merrill Lynch and BMO Nesbitt Burns for the job.

Scotiabank spokesman Frank Switzer said the two arms of his bank acted "with the utmost integrity." But the two roles in this takeover opened the door for Pershing Square to claim Scotiabank had a conflict of interest. If Pershing Square can persuade the OSC to somehow toss out Scotiabank's 4.5 million votes, then Sears Holdings is no longer able to roll up the rest of the minority shareholders. To make the whole thing even more delicious, the chairman of the OSC is former Scotia Capital chief executive officer David Wilson.

For all its troubles, Scotia Capital stands to earn the Bay Street equivalent of minimum wage. The investment bank only stood to make a lucrative success fee -- in the $3-million range -- if Sears Holdings was able to get the chain for the opening bid of $16.86, according to sources at the bank and the American company. With the offer now at $18, Scotia Capital will receive a far more modest stipend. Short of a major reversal at the hands of the regulators, Sears Holdings will take over its Canadian subsidiary early in the new year. A prolonged court fight with Pershing Square is cheaper than an improvement on the $18 bid, sources at Sears Holdings say.

What happens next -- how Sears will beat back Wal-Mart and a planned Canadian invasion by archrival Lowe's Cos. Inc. -- is the subject of enormous debate in retail circles.

Pershing Square pushes the idea of a merger with the troubled Bay and Zellers chains, which were recently taken private by American investor Jerry Zucker. An investment banker who has been through the books of both the Bay and Sears Canada says that while there's no point in putting the chains together, "once everything is private, you're going to see all sorts of wheeling and dealing with the Bay and Sears stores. You'll see Loblaws buy 25 locations, Shoppers, Canadian Tire, even Wal-Mart will buy a few."

The investors who did so well with Sears Canada as a public company say it now makes business sense to say goodbye. Natcan's Mr. Chartrand says: "The next step has to be as a private company. Do that, and you can better deploy capital, you can combine the two companies' purchasing for more clout with suppliers, and combine merchandising. But it has to be private."

Head to head

Meet two fund managers facing off in the Sears Canada takeover, who both claim to follow the value-investing philosophy of Warren Buffett. Strike that. Make it: Meet two money managers who both aspire to be the next sage of Omaha, with the same universal acclaim for their investing acumen, and fortunes in the neighbourhood of Mr. Buffett's $42-billion (U.S.). You decide who stands a chance of emulating Mr. Buffett's incredible four-decade run at Berkshire Hathaway.

William Ackman
The value-based activist investor

William Ackman is a child of the New York suburbs; his father is a successful commercial real estate investor. Mr. Ackman jumped straight into hedge funds after graduating from Harvard Business School in 1992. Starting with just $3-million, Mr. Ackman and a pal built Gotham Partners into a $568-million fund in eight years, backed by investors such as Harvard competition guru Michael Porter.

The wheels came off Gotham in 2002. New York Attorney-General Eliot Spitzer took a long look at the fund's practice of publishing and promoting lengthy research reports -- positive and scathingly negative -- on stocks that Gotham was long or short. Courts held up Gotham's plans to merge two companies where it held stakes, a debt-ridden golf course and a cash-rich real estate trust. The fund was liquidated in 2003, after several investors pulled their money.

Mr. Ackman bounced back with Pershing Square Capital Management, which now has more than $350-million in assets under management, according to Bloomberg News.. The 38-year-old bills himself as a value-based activist investor. He used derivative-based strategies and aggressive, public tactics to push money-spinning restructurings at Wendy's International, which spun off Tim Hortons, and McDonald's, which sold a Mexican fast-food chain. After one recent New York speech to plug his views on McDonald's, Mr. Ackman invited listeners and the media to keep the conversation going at Dizzy's Club Coca-Cola in the Time Warner Centre.

Pershing's current 5.6-million-share direct stake in Sears Canada was purchased after the company's U.S. parent tabled its takeover offer. In addition to running money, Mr. Ackman is a modern art collector who shows his works in New York galleries.

Edward Lampert
Numbers geek with a long-term view

Edward Lampert was a 14-year-old in the suburbs of Long Island, N.Y., when his father, a lawyer, died of a heart attack. His mother took a job as a clerk at Saks Fifth Avenue to pay the bills, her son started working after school in warehouses to help out. In a recent Fortune magazine article, Mrs. Lampert said: "He was a child, and then suddenly he was a man."

After graduating with top marks from Yale University, he landed a job at Goldman Sachs in what's known as risk arbitrage, making bets on stock moves with the house's money. At age 25, Mr. Lampert decided he would prefer to invest his own money. He left Wall Street for Texas, and started ESL Investments -- the letters are his initials. He briefly held a stake in the Texas Rangers baseball team, along with future president George W. Bush. ESL backers include computer entrepreneur Michael Dell and record mogul David Geffen. ESL eventually moved to Greenwich, Conn., and now holds $15-billion. Forbes Magazine puts Mr. Lampert's worth at $1.7-billion.

ESL has just 20 employees. They tend to study the heck out of companies, then take large positions for long periods. Kmart staff told Fortune that Mr. Lampert is a numbers geek, the single-biggest user of IT that the retailer uses to track sales, margins and inventories. Along with a four-year involvement in Kmart and a six-year holding in Sears, ESL has owned a stake in Autozone since 1997, and seen a fourfold increase in the value of the car parts chain.

Mr. Lampert is 43 and married, with a young daughter and a $20-million Greenwich mansion. He never discusses ESL holdings and keeps a low social profile, understandable in view of a 2002 kidnapping that saw the money manager imprisoned in a motel bathroom for 39 hours before being released at the side of a highway. Mr. Buffett earns $100,000 a year as chairman of Berkshire Hathaway. Mr. Lampert doesn't take a salary as chairman of Sears.

Wal-Mart Reviewing Long-Term Media Accounts
Dow Jones Newswires
May 3, 2006

NEW YORK (AP)--Wal-Mart Stores Inc. (WMT) is reviewing its advertising strategy - accounts reportedly worth more than a half billion dollars - as part of a larger overhaul the world's biggest retailer has begun of its marketing image.

The business under review is worth about $578 million, according to an online report Wednesday by Advertising Age. The trade journal did not cite a source for the information.

Officials at Omnicom Group Inc.'s (OMC) GSD&M, in Austin, Texas, and independent Bernstein-Rein, based in Kansas City, Mo., confirmed Wednesday they were notified by Wal-Mart in recent days about the media review.

The move has been long anticipated since former Target Corp. (TGT) executive John Fleming became Wal-Mart's chief marketing officer last summer. Fleming, who had previously headed up Walmart.com, has begun shaking up the discounter's ad strategy in an effort to get its well-heeled shoppers to buy more merchandise beyond food. Over the past year, Wal-Mart, which is expanding to higher-quality apparel and other merchandise, has run ad campaigns in Vogue magazine, and has de-emphasized its trademark Smiley in TV ads, which is linked to its low price mantra.

Gail Lavielle, a Wal-Mart spokeswoman, said the company wants to "have the very best resources to make sure we have consistent messaging" across all its marketing efforts. She declined to comment on how much business is at stake.

The two agencies, both of which have worked with Wal-Mart for many years, said they aim to defend their established business with Wal-Mart.

"They are going through a lot of marketing changes, and so this is something that we have been anticipating," said Steve Bernstein, chief operating officer at Bernstein-Rein, which has worked for Wal-Mart for 32 years. "Sam (Walton) chose us, and we have always treated it like a test."

Officials at GSD&M, which was notified on Monday, said that they have created ads for Wal-Mart for 19 years, developing the "Always Low Prices" campaign. The agency helped create the Wal-Mart ad campaign with Vogue magazine.

Typically, a review involves the company hiring a consultant to study a number of ad agency clients, which are then narrowed further and then assigned an advertising project. Lavielle declined to give details about how long the process would take.

Wal-Mart, Analysts Appear To Differ On Company's Labor Plans
By James Covert – Dow Jones newswires
May 3, 2006

NEW YORK -- Wal-Mart Stores Inc. (WMT) insists it doesn't have formal plans to cut full-time jobs at its U.S. stores, but some Wall Street analysts appear to have reached a different conclusion.

Last week, Citigroup analyst Deborah Weinswig predicted in a 60-page research report that Wal-Mart will reduce its ratio of full-time workers to 60% "over the next year or two," with the remaining 40% slated for part-time status. Wal-Mart's proportion of full-time U.S. workers - which currently stands at about 75% - could further fall to 50% in the future, she added.

Only a week earlier, however, Wal-Mart executives had said in the wake of a similar analyst report that the company isn't targeting any particular ratio of full-time to part-time workers for its 1.3 million U.S. employees. The question comes as a new labor-scheduling initiative at Wal-Mart is drawing complaints from full-time workers about lost hours and health benefits.

Wal-Mart's proportion of full-time workers has declined "very minimally" over time, Eduardo Castro-Wright, president of Wal-Mart's U.S. stores, told reporters last month at a media conference near the retailer's Bentonville, Ark., headquarters. But the decline has come because most job applications submitted to Wal-Mart - about 70% - are for part-time work, he said. The company defines full-time work as 34 hours a week or more.

"It's not a metric we use to measure our business," Castro-Wright said of the full-time to part-time ratio. "We truly don't have an objective and certainly don't manage to that metric."

The comments by Castro-Wright, who is a director of Dow Jones & Co., publisher of this newswire, had followed a research report published in January by JPMorgan Chase & Co., which, like the Citigroup report, had forecast that Wal-Mart's percentage of full-time workers will fall to 60% from a historical level of around 80%.

"As for the ratios, no one [at Wal-Mart] has given the analysts any full-time/part-time numbers," Wal-Mart spokeswoman Sarah Clark said in a written response to an email query. "This is purely speculative on their part."

Charles Grom, the JPMorgan analyst, didn't respond to requests for further comment on his report. Citigroup's Weinswig said through a spokesman that her prediction for a decline to a ratio of 60% full-time workers "is more in line with the industry average for retailers." That industry average, Weinswig says in her report, is between 20% and 40% - an estimate for mass merchants that is supported by third-party research commissioned by Wal-Mart, Clark says.

Full-Time's Rural Roots

The National Retail Federation, a Washington-based trade group, estimates that full-timers make up 40% of staff at publicly traded retail companies, and some of Wal-Mart's key competitors do have significantly lower ratios of full-time workers at their stores. Sears Holdings Corp.'s (SHLD) Sears stores employ only about 39% full-time workers. At Costco Wholesale Corp. (COST), full-time workers comprise about half of the chain's staff, a spokeswoman says. Target Corp. (TGT) officials weren't immediately able to produce a statistic.

Wal-Mart's ratio of full-time workers historically has been high mainly because of the company's rural origins, said Clark, the Wal-Mart spokeswoman.

"In rural markets, most people wanted full-time jobs and that was the applicant pool and expectation," Clark said. "As we have evolved into urban areas, the expectation and market needs change."

Wal-Mart recently has stepped up efforts to better match worker schedules with the ebb and flow of customer traffic, and a higher proportion of part-time workers increases the flexibility of a store's payroll. Citigroup's Weinswig said in her report that she was "encouraged by Wal-Mart's focus on increasing productivity of labor." But the recent changes haven't been greeted as warmly by some employees, who complain their status was essentially cut to part-time when they failed to comply with new demands that they work odd hours, sometimes on short notice.

Wal-Mart recently upgraded its health benefits, including shortening the wait period for part-timers to become eligible for coverage to one year from two and extending coverage to children of part-timers. But if health-care costs are an issue as Wal-Mart reworks its labor schedules, matching workshifts with customer demand presents a far greater opportunity to boost profits, says Robert Garf, an analyst at AMR Research Inc. in Boston.

Sears Canada investors eye Hudson's Bay
Canadian Press Globe and Mail
May 3, 2006

Toronto — In a continued spat over Sears Holdings Corp.'s attempted buyout of Sears Canada Inc., a group of minority shareholders contesting the bid have floated the idea the retailer could be combined with competitor Hudson's Bay Co.

The group of shareholders, led by Pershing Square Capital Management LP, on Wednesday rejected a statement earlier this week from Sears Canada's Chicago-area parent company accusing them of attempting to push up the price of the takeover offer.

They also suggested that “based on a conversation with a former Hudson's Bay Co. senior executive, Pershing believes that a business combination between Hudson's Bay and Sears Canada could yield an additional $300-million of savings from the combined enterprises.”

The minority group did not identify the former executive.

On Monday, Sears Holdings vice-chairman Alan Lacy accused “Pershing and some other U.S. speculators” of delaying the proposed acquisition “in an attempt to extract a premium on shares they purchased recently at prices close to the final offer price of $18 per share.”

The minority shareholders, who also include Hawkeye Capital Management LLC and Knott Partners Management LLC, reiterated in a release that they believe the sweetened Sears Holdings offer of $18 a share undervalues the Canadian firm.

It accused Sears Holdings of being “motivated by its desire to squeeze out minority shareholders at a price that is a small fraction of the fair value of Sears Canada before including any synergies that can be obtained through 100 per cent ownership by Sears Holdings.”

The group noted that each member has held Sears Canada stock since early 2005, “more than one year before Eddie Lampert, chairman of Sears Holdings, attempted to acquire his first share of Sears Canada in the recent bid.”

“Members of the minority group intend to remain long-term holders of Sears Canada as a publicly traded company if they are successful in defeating the minority squeeze out transaction,” it added.

Pershing Square values Sears Canada stock's fair value at between $41.21 to $46.67 per share.

Sears Holdings Corp. is the third largest broad line retailer in North America, with approximately $55-billion in annual revenues, and 3,900 full-line and specialty retail stores in the United States and Canada.

Riling its U.S. parent, Sears Canada board declares dividend
By Marina Strauss – Retailing Reporter – Globe and Mail.com
May 3, 2006

In what may be its last official move, Sears Canada Inc.'s board of directors declared a quarterly dividend yesterday, even though its U.S. parent had signalled there would be no more cash payouts to investors.

Sears Holdings Corp. doesn't pay a dividend in the U.S., and wanted to continue that practice in Canada by cancelling the 6-cent quarterly dividend -- at least if it wasn't successful in its hostile takeover.

The latest move in the bitter battle didn't seem to impress Sears Holdings. After all, the decision was made just a week before the Sears Canada annual shareholders meeting on Tuesday, when a new board of directors will be elected.

Sears Holdings believes the dividend decision should have been made by the new board, spokesman Chris Brathwaite said.

Its $18-a-share takeover offer, by its terms, will be reduced for this and any other future dividend paid by Sears Canada, he added. "We expect that the Sears Canada board of directors elected on May 9 will evaluate the appropriate dividend policy for Sears Canada going forward."

Despite the friction, the executives of the parent who sit on the Sears Canada board supported the latest dividend, and it was unanimously approved, he said.

The board, whose financial advisers had said that the takeover offer was too low, declared the 6-cent-a-share dividend, payable on June 16 to shareholders of record on May 15.

It is probably one of the board's last decisions before the Sears Canada annual meeting on Tuesday, when the independent directors will step down in protest of how Sears Holdings has handled the hostile takeover.

Author throws punch at Allstate
Tough tactics alleged if payouts resisted
By Becky Yerak - staff reporter – Chicago Tribune
May 3, 2006

Allstate Corp., fresh from fending off criticism about its response to policyholders affected by Hurricane Katrina, faces another potential storm, this one from an author who claims the insurer is forcing policyholders to accept prompt but lower payouts or risk time-consuming and expensive litigation.

The alleged hard-nosed tactics are laid out in the book "From Good Hands to Boxing Gloves," due out this summer. The book claims that the nation's second-largest home and auto insurer treats some policyholders with "boxing gloves" during their time of financial and personal duress, rather than the reassuringly familiar "good hands" highlighted in its advertising.

In the process, the author claims, Allstate, which just celebrated its 75-year anniversary, has flouted what were once long-held industry principles that an insurer act as a fiduciary for a claims fund and not siphon off excessive profits until a policy period has passed and legitimate payouts are made.

The toughened-up practices have paid off, at least financially, generating more than $15 billion in excess profits for Allstate since 1995, according to author David Berardinelli, a New Mexico lawyer who has sued Allstate more than a dozen times since 1997 over the company's alleged mistreatment of customers.

The title of Berardinelli's book, aimed at trial lawyers, was inspired by a controversial PowerPoint slide that McKinsey & Co., a key player in the saga, worked up for publicly traded Allstate as they began developing more consistent claims protocols in the early 1990s.

For its part, Allstate defends its claims practices, which were rolled out in 1995 and have been upheld more than half a dozen times in state and federal courts.

"There has been case after case after case where it has been tried and litigated, and found to be fair and appropriate," Allstate spokesman Michael Trevino said.

Allstate says its claims system in fact helps policyholders because it does a better job of identifying illegitimate claims.

Still, since 2004 the company has admittedly defied a judge's order in a case involving Berardinelli to publicly make available McKinsey's PowerPoint presentation.

Allstate, which calls its actions "respectful civil disobedience," says the slides contain trade secrets.

"We've invested time and energy to develop claims processes to position Allstate much more effectively against our competitors," Trevino said. "To make that freely available to our competitors puts us at a competitive disadvantage."

Doug Heller, executive director of the watchdog group Foundation for Taxpayer & Consumer Rights, agrees with Berardinelli, saying that it is counterintuitive for an insurance company to treat its claims division as a profit center.

"Insurance companies are supposed to make money by building a customer base, investing the premiums safely and doing a good job of underwriting so they have enough money to pay claims and maintain profits," Heller said.

They're not supposed to squeeze "more money out of the claims process by lowballing customers," who are in a vulnerable state to begin with because they have just had an accident, he said.

"Unlike the insurance industry's propaganda where they say they are trying to ferret out fraud, the reality is that 99.9 percent of the people who file a claim have just undergone something ranging from unpleasant to traumatic, and they don't want a fight," Heller said. "People who are traumatized and financially in a jam are easily preyed upon."

Some insurance industry observers suggest Berardinelli is making overgeneralizations about Allstate's practices.

Donald Light, a senior analyst at Celent, a financial research and consulting firm, said it is unusual that Allstate would defy a direct court order to hand over the McKinsey documents. But he said there is nothing wrong, per se, in paying off some claimants in short order while contesting others.

"Those are legal, ethical and fair practices in the abstract," Light said. "Every insurance company should be doing the things that Allstate is accused of doing, to be fair to its owners and its other policyholders," he added. "The real question is has it been applying it in an unfair or unethical way."

Another industry observer said insurance companies' protocols are rarely, if ever, intentionally aimed at paying less than what is owed. At the same time, he said, lawyers make a living by looking for weaknesses in the protocols.

"Insurers, especially big ones such as Allstate, are excellent targets for lawsuits, and couldn't survive for 10 minutes if they had truly inappropriate procedures," said Brian Sullivan, editor of Risk Information Inc., which publishes Auto Insurance Report and Property Insurance Report.

"When a lawyer holds a seminar or writes a book about how to maximize insurance company claims, it is almost always because they don't have enough clients to make money as a lawyer," Sullivan said. "If the lawyer has found a true problem, Allstate has already fixed it, to protect themselves from claims and lawsuits. It's what they do for a living."

In his long-running battle with Allstate Berardinelli was allowed to get a restricted viewing of the McKinsey PowerPoint documents. They formed the basis first for a 16-page August 2005 article that he wrote for New Mexico Trial Lawyer and is now expanding into a book.

He declined to make an advance copy of his book available, but his August 2005 article traced how Allstate began taking a more adversarial stance against policyholders.

The change can be traced to 1992, when Allstate retained McKinsey to redesign its claims-handling systems, Berardinelli wrote. The consulting firm worked with the insurer until 1997.

"Our goal is to redefine the game . . . to . . . radically alter our whole approach to the business of claims," according to the 1995 implementation and training manual for McKinsey's plan.

McKinsey had recommended that Allstate adopt a "zero-sum game," akin to a poker game in which players compete for the money of other players. As an insurer, Allstate would essentially compete with policyholders for profits in the pool of funds that had accumulated to pay off claims, Berardinelli said in his article.

McKinsey, which declined to comment for this story, found that most policyholders would want to avoid the expense and delay of going to court, Berardinelli wrote.

"Instead of a system designed to deliver prompt and fair payment of claims, McKinsey designed its system to deliver either prompt payment or fair payment," but not both, he wrote.

Allstate could give "good hands" service to 90 percent of the claims, settling them within 180 days, Berardinelli wrote, citing a McKinsey slide.

The rest would receive the "boxing gloves" treatment, with some claims taking more than four years to settle, he said.

"The message of McKinsey's `Good Hands to Boxing Gloves' slide is forcefully frank," Berardinelli wrote. "Policyholders who voluntarily accept lower loss payouts will receive the `good hands' treatment, i.e., prompt payment.

"On the other hand, policyholders who resist lower loss payouts will receive the `boxing gloves' treatment, i.e., aggressive litigation tactics deliberately designed to make litigating claim values with Allstate time-consuming and so prohibitively expensive that any possible victory by the policyholder will be a purely Pyrrhic proposition."

In early testing, McKinsey found its new plan was not achieving the desired results because too many Allstate adjusters were clinging to the old way of doing business, he said.

So McKinsey adopted a new employee job performance measure that "would effectively force adjusters to see policyholders who resist . . . as an obstacle to achieving good job performance evaluations, making it natural for [the adjusters] to adopt McKinsey's `boxing gloves' approach," Berardinelli wrote.

"The ability, or even the willingness, to compromise would be replaced by take-it-or-leave-it negotiating tactics."

Medicare's Cost of Drug Benefit Will Be Lower Than Expected
By Sarah Lueck – Wall Street Journal
May 2, 2006

WASHINGTON -- Medicare's prescription-drug benefit will cost the government about 20% less during the next decade than was projected a year ago, but largely for reasons outside the government's control.

Most of the reduction will result from lower-than-expected growth in the nation's per capita drug spending, Medicare's actuaries said in their latest projections, which came as part of the annual release of data on the financial health of Medicare and Social Security from the trustees of the programs.

The actuaries said fewer people than expected are signing up for the new coverage. Since last year, Medicare actuaries have lowered estimates for enrollment by May 15 -- this year's deadline for signing up -- from about 37 million to 31.4 million, a move that fueled calls in Congress to give people more time to sign up.

The latest cost projection for the drug benefit is "substantially lower" than projected last year, the trustees report said. Last year, Medicare's actuaries estimated the benefit would cost a total of $997 billion over 10 years, not including savings to Medicaid. Now that estimate is $788 billion. Another reason for the reduction: The private insurers selling the new, government-subsidized coverage achieved discounts on medications sooner than the actuaries had expected. That offset a 4% increase in what the government thought it would spend on Medicare beneficiaries with costly drug bills.

"The outlook for Medicare [drug coverage] is much better," said Mark McClellan, administrator of the federal agency that runs the program. He credited the competition for customers between private insurers that resulted in lower than expected premiums for drug coverage this year. On enrollment, he and Health and Human Services Secretary Michael Leavitt said they are hitting their own goals to have 28 to 30 million Medicare beneficiaries getting drug coverage.

The reduced cost of the drug benefit was a bit of good news accompanying continued warnings about financial trends that are unsustainable in Medicare and Social Security. The reports showed that Medicare's hospital insurance trust fund will be depleted in 2018, two years earlier than forecast last year. Social Security will begin running a deficit in 2017, the same as projected last year, and its accounting trust fund will be exhausted in 2040, one year earlier than projected. (Read the report. 4)

Several of the six trustees, including the secretaries of Treasury and Health and Human Services, said fundamental changes are needed to rein in the costs of the programs. Treasury Secretary John Snow warned of a "looming fiscal crisis" if changes aren't made before Baby Boomers retire. "The message of this report is urgency," Mr. Leavitt said.

But in the near term, little is expected to change. President Bush, in his budget proposal for next year, recommended trimming spending on Medicare provider-payments and raising premiums for higher income beneficiaries. But Congress isn't enthusiastic about tackling the issue with mid-term elections approaching. Mr. Bush also recommended the formation of an entitlement commission to examine Medicare and Social Security, after his attempt to add private accounts to the federal retirement stalled last year.

Still, months after it was suggested, the commission hasn't yet been formed. Mr. Snow said it's "being worked hard," but conversations about who should be on the panel continue between prospective members, the White House and Congress.

The Medicare report held two other important developments. Under a requirement passed with the Medicare drug benefit, legislative action is supposed to occur if Medicare's trustees predict that, within the first seven years of their annual 75-year projections, general revenues fund more than 45% of total Medicare spending for two years in a row. Yesterday's report said that threshold would be reached in 2012. That means the trigger for action would occur in 2007 if projections hold. President Bush would be required to propose legislative changes, and Congress would have to give them fast-track consideration

Also, Medicare beneficiaries will see a big jump in the premiums they pay for physician and other outpatient care, under the portion of the program known as Part B. Medicare officials said yesterday that premiums would increase next year by 11%, to $98.20 a month from $88.50, partly because of a surge in the volume and intensity of Part B services and a decision by Congress to override a reduction in physician payment that was scheduled to occur this year.

Sears shows cards
By Andrew Willis – Globe and Mail
May 1, 2006

Sears Holding Corp. lifted the veil on its planned acquisition of its Canadian subsidiary Monday in an attempt to defang criticism of the takeover from U.S. hedge funds.

In the wake of news last week that Ontario regulators are looking into Bank of Nova Scotia's role in the bid for Sears Canada Inc., the retailer's Chicago-based parent said allegations against the bank are “baseless.”

U.S. hedge fund Pershing Square Capital Management LP and other funds raised issues of conflict of interest because one unit of Scotiabank was advising Sears Holding, while other arms of the bank owned 4.5 million Sears Canada shares that were eventually pledged in favour of the transaction. Sears Canada shareholders will formally vote May 9 on the offer.

Sears Holding said it a press release yesterday that there are no conflict-inducing success fees being paid to Bank of Nova Scotia, fees that are contingent on the parent buying the Canadian company. The bank's Sears Canada shares were acquired before Sears Holding made its bid, and the American company said it was not aware the bank held the stake until after it tabled its offer.

“All negotiations between Sears Holdings and the parties to the support agreements were conducted on an arm's-length basis, with all parties acting in their own independent economic interests,” said Sears Holding in a statement. “Pershing's suggestion ... that Scotia Capital and Bank of Nova Scotia were acting as Sears Holdings' agents in entering into the support agreements is false.”

Sears defends offer for Sears Canada
Reuters
May 1, 2006

LOS ANGELES, May 1 (Reuters) - Sears Holdings Corp. on Monday denied that shareholders Scotia Capital and Bank of Nova Scotia, which backed its plan to completely acquire Sears Canada, were acting on its behalf.

The department store operator issued the statement in response to an April 28 report in Canada's National Post newspaper that said dissident investors Pershing Square Capital Management LP, Hawkeye Capital Management LLC and Knott Partners Management LLC have asked the Ontario Securities Commission to review the deal.

The dissident funds have said they will band together to fight Sears' $775 million bid for Sears Canada, saying they think the Canadian unit is worth more.

OSC officials were not immediately available for comment.

According to the National Post report, the dissident group raised concerns that Scotia Capital, the investment banking arm of Bank of Nova Scotia, was also acting as a financial adviser to Sears in its bid to buy Sears Canada.

On Monday, Sears said the shares owned by Scotia Capital were acquired prior to the firm being hired as an adviser. The retailer also said it was not aware of Scotia Capital's holdings at the time it was hired.

In the statement, Sears Vice Chairman Alan Lacy accused Pershing and the others of wanting to hold up the deal to extract a premium on shares they purchased recently at prices close to the final offer price of $18 a share.

Earlier this month, Sears declared victory after gaining support for its sweetened bid from most of the minority shareholders of Sears Canada.

But the dissenting group has warned it will take "all appropriate legal action" to halt the deal.

Officials from Pershing, Hawkeye, and Knott Partners were not immediately available for comment.

FLASHBACK 1973 -- Top job
By Nancy Watkins
April 30, 2006

Sources: Tribune archives, "Sears, Roebuck & Co. 100th Anniversary 1886-1986,"
by Lorin Sorensen, U.S. Bureau of Labor Statistics
Published April 30, 2006

IT WAS A MOMENTOUS OCCASION to be sure.

THIRTY-THREE YEARS AGO THIS WEEK, the final beam of what was now the world's tallest building was put in place.

Mayor Richard J. Daley, retired Sears chairman Gordon Metcalf and other dignitaries braved strong winds to witness the culmination of three years of toil.

After all the muckety-mucks had gone home, the construction workers had their own, less-formal gathering in the tower. Beer was present, a fight broke out and about half of the 400 or so partygoers ultimately took part before police finally put a stop to it.

Observed one lieutenant: "THESE TOPPING-OUT PARTIES ARE ALWAYS HELD ON THE FIRST FLOOR, SO NO ONE FALLS OFF THE BUILDING."

- Number of Sears employees, construction workers and dignitaries who signed the final beam: 12,000.

- Number of stories in the first skyscraper, Chicago's Home Insurance Building (1885): 9.

- Rank of structural iron and steel work among the most dangerous jobs in the U.S.: 4.

- U.S. president who bought his wife's wedding ring at Sears: LYNDON JOHNSON.

"She towers so high/Just scraping the sky/She's the Tallest Rock."

-SONG SUNG BY THE TOWER BUMS, A BAND OF ELECTRICAL WORKERS, AT THE SEARS TOWER TOPPING-OUT CEREMONY

Groups Opposing Wal-Mart Get Help From New Web Site
By Michael Barbara – New York Times
May 1, 2006

Trying to stop a Wal-Mart from coming to town? Hit the print button.

Two groups, Wal-Mart Watch and Sprawl-Busters, have teamed up to create an online toolkit for community groups opposing the giant discount retailer. The site, called Battlemart, features everything a local activist needs: grants (to start a citizens' group), reports on the economic impact of a Wal-Mart (to be submitted to a local city council), the names of local traffic engineers (to testify at zoning hearings), and even advice on how to name a group (try "[city name here] First.").

Battlemart, which will be formally introduced today, is intended to "level the playing field" for residents facing off against a company with 5,000 stores and $300 billion in annual sales, said Al Norman, the founder of Sprawl-Busters and the author of "Slam-Dunking Wal-Mart," a guide to keeping giant national stores in check. "It's a grab and go," Mr. Norman said. "You download it and take it to your Sunday night citizens' group. They say, oh, we need a lawyer and a assessor, letters to the editor."

Battlemart even offers fund-raising tips for fledgling anti-Wal-Mart groups. "Avoid very labor-intensive events like car washes and bake sales," it advises.

Wal-Mart Watch — which has received hundreds of thousands of dollars from the Service Employees International Union — will be host of the Web site and offer start-up grants of $500 to $3,000. So far, it has financed 10 groups, including Gresham First in Gresham, Ore., and Great Falls First in Great Falls, Mont.

Battlemart reflects the degree to which the debate over Wal-Mart, once confined to living rooms and union halls, has now shifted to the Web.

Mr. Norman, who has posted some of these suggestions on sites like WakeUpWalMart.com, said he would serve as a blogger on the Battlemart Web site, tracking local campaigns to block stores and responding to questions.

A Wal-Mart spokeswoman could not be reached for comment yesterday.

Asked if Battlemart would help a handful of residents block a store favored by the majority of local residents, Nu Wexler, a Wal-Mart Watch spokesman, said: "We are not trying to create cookie-cutter site fights," as local zoning battles are called. "This Web site is responding to demand, not creating it."

Creativity Overflowing
After its initial efforts stumbled, Whirlpool is reaping big dividends
from its push to jump-start innovation
By Michael Arndt - Business Week
May 8, 2006

David R. Whitwam had run out of tricks. The chairman and chief executive of Whirlpool Corp. had built the company into the world's No. 1 maker of big-ticket appliances, achieving unmatched economies of scale. He had also cut costs by hundreds of millions of dollars, again and again. Yet here it was 2000 and, judging by everything from stock price to profit margin to market share, Whirlpool was no better off than it was a decade earlier.

The company's problem was not hard to diagnose: Its machines had been reduced to commodities. Prices for its most important products were actually falling each year. Nor was the solution a mystery: Whirlpool had to come up with exciting new products that could command premium prices. But the appliance maker had never paid much attention to innovation. During most of its 95-year history, it excelled at operating plants and distribution channels efficiently and at turning out washers and dryers that were solid and long-lasting. From time to time, research and engineering (R&E) technicians would tweak Whirlpool's Kenmore, KitchenAid, and namesake appliances to lower costs or boost performance -- by better insulating a freezer, say, or adding another washing cycle. But that's about as exciting as product development ever got.

ALPINE RETREAT
It was clear that Whirlpool needed to reinvent its corporate culture. To do so, it had to figure out the answers to basic questions that managers everywhere struggle with: How do you define innovation? How do you measure success? How do you teach people to be creative? "We knew from a strategic point of view what we needed to do, but from a practical point of view we didn't know how to do it at all," confesses Jeff M. Fettig, 49, a 25-year veteran who succeeded Whitwam as chairman and CEO in mid-2004.

So Whitwam put out a broad call for help. Believing that brilliant ideas were buried in the corporate hierarchy, he invited each of the company's 61,000 employees to unleash their creativity: Everybody everywhere, he exhorted, Go out and innovate!

Off in the Italian Alps, a crew of workers got right at it. Handpicked by managers from across the company's European staff, the 25 employees were freed from their regular jobs and packed off to Whirlpool's office in Comerio, Italy, with a single purpose: to dream up products or services that would truly differentiate Whirlpool from rivals. A year later, they came back with their big brainstorm: an Internet business that would enable people to race one another over the Web on stationary bikes. So much for that experiment. It was obvious that Net bike racing, which didn't draw on any of Whirlpool's strengths, was a nonstarter.

Whirlpool learned the hard way that real innovation requires a lot more than simply urging thousands of employees around the world to tap into their inner designer and then waiting for the great ideas to roll in. It requires hard work, structure, and unwavering discipline. After its inauspicious start, the company retreated from the all-out effort to democratize innovation and moved to a more traditional centralized model of product development. That did the trick. Since 2001, revenues from products that fit the company's definition of innovative have zoomed up from $10 million to $760 million in 2005, or 5% of the Benton Harbor (Mich.) company's record $14.3 billion in total revenue. Whirlpool's shares, at $92.64 on Apr. 25, have almost doubled in price over the past five years. Now, following its $2.6 billion Maytag Corp. takeover, Whirlpool will bring innovation to its onetime archrival.

Plenty of other companies are taking notice of Whirlpool's success. Over the past few months, the company has hosted delegations from Hewlett-Packard (HPQ <javascript: void showTicker('HPQ')> ), Nokia (NOK <javascript: void showTicker('NOK')> ), and Procter & Gamble (PG <javascript: void showTicker('PG')> ) -- all eager to benchmark their own innovation programs against Whirlpool's. "You have to give the management team credit," says Jan W. Rivkin, a Harvard Business School professor who uses Whirlpool as a case study in his course on competitive strategy. "A lot of other companies would have shut this down. One of the remarkable things here is they've found ways to adapt and keep this rolling."

Whirlpool's leaders first started to recognize that they had a problem back in mid-1999. Whitwam was in his 12th year as CEO and had just promoted Fettig to president and chief operating officer. Housing, and sales of Whirlpool appliances, were booming. But despite strong demand, the prices of Whirlpool appliances were falling at an average rate of 3.4% a year, forcing yet another job-eliminating restructuring. Whitwam remembers those days like this: "I go into an appliance store. Now, I have pretty good eyes. I stand 40 feet away from a line of washers, and I can't pick ours out. They all look alike. They all have decent quality. They all have the same price point. It's a sea of white."

ROUSING THE TROOPS
So Whitwam, now 64, called in Nancy T. Snyder, an organizational behaviorist who had joined the company in 1986, and gave her a new title: director of strategic process. He also gave her a new assignment: turn everyone at Whirlpool into innovators. That was important to Whitwam, because he believed he could change corporate culture only by calling on each one of Whirlpool's employees to take up the cause. Otherwise, he feared, only an elite would embrace the challenge, and eventually they would lose out to the process-oriented and hidebound majority.

In early 2000, management enlisted a vanguard of 75 employees to be trained in innovation. Their teachers were 10 consultants from Strategos, a management consultancy founded by Gary Hamel in Menlo Park, Calif., in 1995. The students represented almost every job classification, from corporate vice-president to engineer to factory hand. They were assembled by region in groups of 25 in company facilities in Benton Harbor, Brazil, and Italy. For up to a year, as others took over their previous jobs, these employees were trained like pupils at a specialized graduate school.

The consultants spent weeks teaching them how to "ideate" by reexamining orthodoxies that were blinding employees to opportunities. "There are no barriers," Whitwam told students. "I don't care if we get one innovative idea out of the process."

He liberated the students to such a great extent, however, that most of their ideas turned out to be useless, impractical, and poorly suited to Whirlpool's strengths. In addition to Internet bike racing, employees proposed the Unattended Box -- a doorstep appliance to keep food deliveries hot or cold until owners came home from work. It was ignored. So was their plan to create a membership club for people who wanted home repair services.

The next step for Whirlpool was getting the rest of its global workforce involved. Snyder set up an intranet site that offered a do-it-yourself course in innovation and listed every project in the pipeline. Employees were invited to post ideas or to network informally with others and get their expertise. The company hosted innovation fairs to salute inventors and elicit more ideas. For one show, Whirlpool filled the concourse of Orchards Mall, outside Benton Harbor, with 54 exhibits of new products shown off by proud employees, including a quartet of engineers from Whirlpool's oven factory in Oxford, Miss. The four had invented a combination gas grill/refrigerator/oven/boom box for tailgate parties. It's a promising idea now being redesigned to work out safety issues.

Whitwam, meanwhile, continued to use his bully pulpit, encouraging workers to go to their bosses with proposals or to come to him directly if the managers wouldn't listen. And he put his money where his mouth was, setting aside $45 million from the capital budget for innovation in 2000 and doubling that amount in 2001. Although they didn't receive a penny for their ideas, rank-and-file employees were thrilled to be treated as peers and tapped for advice. In 2001 and '02, Whirlpool's "knowledge management" site recorded up to 300,000 hits per month. "I had never seen a strategy that was so energizing to so many people," Whitwam says.

Management, however, wouldn't buy it. Midlevel executives were peeved that their workers were off doing side projects when they still had real work to do. And upper-level managers could shrug off the initiative, because Whitwam hadn't given them any concrete goals or tied their performance to any innovation metrics.

So Whitwam and his coterie were forced to be innovative themselves. While not completely abandoning their come-one, come-all approach, they realized in 2002 that they had to bring more order to the innovation process. For starters, they decided that new ideas would have to enhance the company's existing brands or products. Top management would evaluate and fund all new proposals at monthly innovation-board meetings. These groups, in turn, reported to Whirlpool's nine-member executive committee. Green-lighted projects would be assigned to pros -- representatives from the design, market research, R&E, and manufacturing departments -- to see them through. In addition, Whitwam began setting annual revenue and pipeline targets in 2002 and conducting employee surveys to gauge workers' involvement in innovation. Senior executives would have to hit all of these numbers or lose 30% of their annual bonus.

To make certain that only high-potential ideas reached the I-board, Snyder and her innovation specialists came up with something called the I-box, a two-step graphing tool. The goal: to make it easier to design products that reflected consumers' needs and desires. The first step required innovators to demonstrate that their proposals were something that real people would buy. That could entail months of market research, quizzing thousands of consumers. Their ideas were then graded by innovation consultants on a scale of 1 to 10, from dud to sure thing. Only ideas with a grade of at least 6.5 could proceed.

QUICK ON THE UPTAKE
Step two involved analyzing whether the new product would command above-average markups, again through market research. On this test, also, ideas that scored less than a 6.5 got weeded out. The tool altered the company's development process. "Instead of a guy in the lab inventing something he thinks is cool, innovation is coming from the consumer through research," says Pamela Rogers, global director of customer excellence and innovation.

The company has also become much more flexible and adaptable. In collaboration with Best Buy Co. (BBY <javascript: void showTicker('BBY')> ), Whirlpool designed a mod fridge for dorm rooms and Gen Y apartment dwellers. The 32-inch-tall cube comes with a removable front panel and accessories such as a clock and radio so consumers can customize its look. Its carefully measured capacity: exactly enough to hold a large pizza and two six-packs of drinks. At the last moment, however, Best Buy backed out -- an unexpected development that probably would have killed the product back in the old days. But this time the company didn't give up. Last year, Whirlpool marketed its hip appliance in Brazil, where it was being built by its Brastemp unit. Called Pla, it has become a hit.

Whirlpool's innovators are also learning how to revive products and services that failed in their first go-round. Executives like to point out that they never kill ideas; instead, they shelve them so that other employees can take a look at them later. So far, 717 ideas have been put in this inactive status. Among them was the Personal Valet, an armoire-like appliance that steamed out wrinkles and odors from dry-clean-only clothes. Consumers hailed the idea but balked at the $1,199 price. Introduced in 2002, it was discontinued in 2004. Now it's back. But this time the device, rolled out in 2005 as the Fabric Freshener, comes in a collapsible plastic design made under contract in Mexico and lists for $199.

Although the company has modified Whitwam's original vision, it has succeeded in achieving his top goals. Since 2003, innovation revenue has quadrupled annually, easily surpassing goals. Fettig attributes 3 points of Whirlpool's sales growth rate, which has averaged 9% since 2003, to creative new products. Moreover, Whirlpool is no longer caught in a price war, forcing rivals to innovate as well or fade away, as Maytag did with its aging product line. For the past three years, the average price of Whirlpool appliances has risen 5% annually. The company has 24 I-con- sultants and 580 I-mentors in its workforce and 568 innovation projects in development today, including 195 being scaled up for commercial launch. Whirlpool calculates that these new appliances, once they're on the market, could produce $3 billion in annual sales, up from projections of $2 billion in 2004 and $1.3 billion in 2003.

Whirlpool has also succeeded in debunking some corporate orthodoxies, or conceptions that are so firmly fixed that they seem immutable. One is that consumers are driven almost entirely by price. Three years ago, the company introduced a new Kitchen-Aid waffle maker to replace the $99 model. Rather than just alter its innards and stick with the same price point, management came up with a "design icon," recalls Charles L. "Chuck" Jones, Whirlpool's vice-president of global product design. That meant fancier touches and better materials -- and a $399 retail price. Nonetheless, the company is selling the upscale version as fast as its factory can churn it out. "There is a rational component to purchasing appliances, but far outweighing that is an emotional component," says Jones. "What the eye admires, the heart desires."

Online Extra: Whirlpool's Future Won't Fade
Business Week
May 8, 2006

The appliance giant's CEO, Jeff Fettig, has a favorite word: innovation. His company has used it to set earnings records and build a cutting-edge brand

These days, Jeff Fettig is getting the glory. Since mid-2004, Fettig has been chairman and chief executive of Whirlpool, which as the world's No. 1 maker of big-ticket appliances, has set records for sales and earnings. The housing boom in the U.S. certainly has helped. But the real numbers booster, says Fettig, is innovation. Thanks to new products, Whirlpool not only has logged outsized growth in demand; it has been able to command higher and higher prices (see BW Online, 4/27/06, "Whirlpool: Fabulous by Design".

In 2005, the Benton Harbor (Mich.)-based company attributed $760 million of sales to new products, up from $217 million a year earlier. Raising the bar, Fettig now expects innovation revenues of $1.2 billion in 2006. And even that goal may not be all that hard to surpass. With 568 projects in some stage of development today, Whirlpool calculates that new appliances in its pipeline will generate $3 billion in annual sales when they're rolled out over the next few years (see BW Online, 3/6/06, "How Whirlpool Defines Innovation."

In 1999, then-chairman and CEO David R. Whitwam concluded that innovation was the only way for the appliance maker to rise above its peers. While Whitwam set the course, Fettig deserves credit for leading the way. After all, as Whirlpool's new president and chief operating officer at the time, Whitwam was urging everyone everywhere in the company to think of themselves as innovators (see BW Online, 2/7/02, "Whirlpool Taps Its Inner Entrepreneur " . Fettig, 49, is a career man at Whirlpool. He was hired as an operations associate in 1981 after earning his MBA from Indiana University. Sitting at a conference table in his executive suite, Fettig recently spoke with BusinessWeek Senior Correspondent Michael Arndt about Whirlpool's innovation strategy. An edited transcript of the conversation follows:

How did you decide on innovation?
This goes back to a critical assessment we did of ourselves and the industry in the late 1990s. Any consumer walking into any appliance showroom anywhere in the world would see this: a sea of white. You don't see anything really different, even if you haven't been in the market for 10 years. You can't differentiate brands. You can't see the value proposition without having someone explain it to you. Thus, it's called the white goods business.

Without innovation and differentiation, the fundamental basis for competition was just price. There's nothing wrong with that. But our view was for us to truly execute a differentiated, value-creating strategy, we needed to do something dramatically different. From day 1, we took the approach that innovation was not the privilege of a few; it was a right of the masses. The only way innovation would work is if everybody was in, so to speak.

So is it working?
We're seeing evidence of what we call a "want in." In other words, consumers see something that is so different or innovative that they want to buy it as opposed to: they have to buy it. Because of that, we're dramatically changing the lifecycle of products. For example, if you looked four or five years ago, the average life of a washing machine was something like 13 years. With our Duet washers and dryers, which have been huge hits, we're surveying owners and finding out a lot of people are replacing their washing machine with the Duet after five, six, or seven years because they want it, not because their old machine broke or wore out. They just saw it, and they wanted it.

Another thing we're seeing is this is driving new revenue growth. I've told our investors that the incremental sales from innovation are now adding three points of growth to our annual growth rate. And it could be more. The other item -- and I don't think anything could be more clear than this -- is our average global selling price, or sales divided by number of units. From 1997 to 2002, our aggregated growth rate was a negative 3.4%. From 2002 through 2005, we've turned that from a minus 3.4% to plus 5%.

Could you highlight an example or two of when you had to adjust your strategy as you discovered things weren't working as you had planned?
Our first year, 1999, was all about learning. We knew what we needed to do; we just didn't know how to do it. We pulled 75 people out of their full-time jobs from vice-presidents to directors to secretaries to blue collars on the assembly line. We put them in three different innovation teams around the world. And for the first year, their job was to start innovating. I would say we had success with that. There's incredible power in putting together diverse people to come up with great business ideas. We learned tons.

But when we got to the end of that, we really started hitting a roadblock. This was the Internet bubble era. And most people wanted to go completely outside of our box; they wanted to start an Internet company. We had our first breakthrough. We said this is great, we don't want to overcontrol this, but we need to bound it. So we made this very simple fundamental decision: You could work on anything you want, but it has to be within the scope of our brands. It brought a boundary to our people.

I'd say we had the next breakthrough, in late 2002 and going into 2003. We were still treating innovation as something separate. It needed to be something we do every day. How do you do that? Basically, you decide where you want to go, set a goal, and hold people accountable. That's when we introduced innovation revenue and pipeline targets, and linked them to executive compensation. That was probably the big breakthrough that allowed us to scale this up.

What do you need to do now to improve your strategy?
I think we have a healthy approach. There's always faster, better, cheaper. Another dimension is that although we are doing this around the world, we think we can more rapidly leverage innovation from one part of the world to another part of the world. We've got 60,000 people worldwide. We estimate that on any given day we've got 1,500 working on innovation. There are probably 5,000 in any given year. That's a lot of people, but we've still got a long way to go. We may never get to 60,000. But we could get to 10,000 or maybe 15,000. We've got a lot of bandwidth.

What has the new strategy done to Whirlpool's corporate culture?
People think they have more freedom to contribute than ever before. This is fun. This is exciting. Our retail partners value this a lot. Young people talk about us like we're a high-tech company. No, we're not, we're a high-innovation company. Which is different from how people thought of us before, as an old, traditional company. People at Whirlpool don't believe they're in an old, traditional company. They believe they have the right and the obligation to create a future.

Teachers solicited Sears Canada
Takeover battle:
BNS confirms its role in current deal under OSC review
By Theresa Tedesco - Financial Post – Canada.com
April 29, 2006

Senior management at Sears Canada Inc., currently the target of a hostile takeover bid under review by the Ontario Securities Commission, was approached by the Ontario Teachers' Pension Plan last spring about putting together a plan to buy the Canadian retailer from its U.S. parent.

Sources say representatives from the country's second-largest pension fund met with Brent Hollister, Sears Canada's chief executive, about six months after Edward S. Lampert took control of Illinois-based Sears Holdings Corp. in November, 2004. Teachers, which manages about $88-billion in assets, pitched the idea that management of the country's second-largest department store chain could have had success if it presented a cash offer to Mr. Lampert because the reclusive hedge fund manager appeared to be showing little interest in the Toronto-based subsidiary at the time.

"Management didn't want to be proactive in the new ownership environment. They seemed to want to play it out to see what would happen," said a source familiar with the discussions who asked not to be named. Sources confirmed the overture by Teachers was not presented to the 10-member board of directors at Sears Canada.

Seven months later, Mr. Lampert turned his attention to the Canadian unit and served notice that the U.S. parent company intended to launch a takeover bid. An offer of $16.86 a share was tabled on Feb. 9, and subsequently increased to $18 a share after the first offer was rejected as financially inadequate by a special committee of independent directors from Sears Canada.

The Financial Post reported yesterday that the Ontario Securities Commission is reviewing the takeover bid and proposed privatization and is focusing on the role of Bank of Nova Scotia after a group of dissident Sears Canada shareholders filed a lengthy complaint with the provincial regulator this week.

Three New York-based hedge funds, which collectively own 14.1% of Sears Canada's outstanding shares, asked the OSC to examine the bank's roles as lender to the Canadian subsidiary, advisor to the U.S. parent's $892-million offer and as a minority shareholder which agreed to pledge 4.5 million Sears Canada shares in support of the takeover and privatization.

Yesterday, Frank Switzer, a spokesman for the bank, confirmed the Post's article, saying, "It's our understanding that several U.S. hedge funds have asked the OSC's finance team to review the transaction." Mr. Switzer said Scotiabank has had "some enquiries" from the OSC and "we're responding accordingly."

Staff at Canada's largest securities regulator, which declined to comment, began questioning Scotiabank about its role in the controversial bid in the past two weeks.

Although Mr. Switzer would not elaborate on the information sought by the OSC, sources say the dissenting shareholders -- Pershing Square Capital Management LP, Hawkeye Capital Management LLC and Knott Partners Management LLC -- asked the commission to force Scotiabank to publicly disclose its advisory fees as well as its stakeholdings in Sears Canada. They expressed concern to the securities watchdog that the bank's combination of roles may pose a conflict.

The complainants have also requested the commission order Sears Holdings to publicly reveal the identities of a group of unnamed shareholders -- which includes Scotiabank -- who have supported the $18-a-share offer and privatization bid. Until that happens, the New York hedge funds, which have sought to block the deal because they say the price is below an independent valuation of $19 to $22.25 a share, have asked the OSC to halt the U.S. parent's offer.

Meanwhile, sources say the six independent directors on the board of Sears Canada have decided not to write a letter to the OSC in support of the dissenting shareholders.

The six independent board members will not stand for re-election to the Sears Canada board at the May 9 annual general shareholders' meeting.

Canada Commission reviewing Sears bid
By Theresa Tedesco - Financial Post
April 28, 2006

The Ontario Securities Commission is reviewing a hostile takeover bid for Sears Canada Inc. after a group of dissident shareholders asked the provincial regulator to halt the proposed transaction by the retailer's U.S. parent and to investigate the role of Bank of Nova Scotia in the controversial offer.

Sources say three New York-based hedge funds filed a detailed complaint to the country's largest securities regulator this week urging the OSC to probe details of the Canadian bank's engagement as a financial advisor in a $892-million offer by Illinois-based Sears Holdings Corp. to buy the remaining 46.2% equity stake in the Toronto-based retailing subsidiary it does not already own.

OSC officials declined to comment. However, sources say commission staff in the takeover department, which monitors all mergers and acquisitions, are reviewing the complaint.

Scotiabank has been notified and is assisting the provincial regulator.

Pershing Square Capital Management LP, Hawkeye Capital Management LLC and Knott Partners Management LLC had co-ordinated efforts two weeks ago to oppose what they called Sears Holdings' "coercive tactics to force the minority shareholders of Sears Canada to tender into an undervalued and unsupported offer."

According to sources familiar with the complaint, the U.S. investor group, which is said to collectively own 14.1% of Sears Canada's outstanding common shares, asked the provincial securities commission to determine whether Bank of Nova Scotia should be considered a "joint actor" under Ontario securities laws. Scotia Capital Inc., the investment banking arm of the major Canadian bank, is acting as a financial advisor to Sears Holdings.

At the same time, Scotiabank has agreed to tender 4.5 million Sears Canada shares as part of an unnamed group of shareholders who have signed agreements to support the controversial bid.

The dissenting shareholder group is concerned that the bank's combination of roles as advisor to the bidder, shareholder and banker to Sears Canada may pose a conflict.

They have asked the securities regulator to cease-trade the U.S. parent's takeover offer until commission staff can determine whether Scotia's votes should be allowed to count as part of the minority shareholders whose support is needed to make the bid successful.

Frank Switzer, a spokesman for the bank, said "throughout this transaction, Scotia Capital has acted with the highest degree of integrity and in full compliance with all laws and regulations."

Without prior discussion or negotiation, Illinois-based Sears Holdings, controlled by 44-year-old reclusive hedge fund manager Edward S. Lampert, informed the board of its Canadian subsidiary late last year that it intended to launch a takeover bid.

Sears Canada is the second-largest department store chain in Canada and the largest general merchandise catalogue retailer in the country. It has 122 locations, 113 travel stores, 54 Home outlets, most of them located in power centres, and has joint venture interests in 14 shopping malls across Canada worth an estimated US$310-million.

On Dec. 5, 2005, the U.S. parent, which owns 53.8% of Sears Canada, declared publicly that it intended to make an offer to purchase a majority of the outstanding shares that trade on the Toronto Stock Exchange.

To that end, the giant retailer revealed it had a lock-up agreement with Natcan Investment Management Inc., which had agreed to tender its 9.06% stake.

In response, Sears Canada's board created a special committee of six independent directors to supervise the preparation of a formal valuation and fairness opinion to assess the offer. They hired Toronto-based Genuity Capital Markets to produce the opinion.

On Feb. 7, Genuity produced an opinion that pegged a fair market value of Sears Canada shares in the $19 to $22.25 range. Two days later, on Feb. 9, Sears Holdings unveiled a bid of $16.86 a share. In the offering circular to Sears Canada shareholders, it was disclosed that Scotia Capital was advising the U.S. parent in the proposed takeover transaction.

Sources say when the special committee at Sears Canada learned of Scotia Capital's involvement in the takeover bid, the independent directors debated whether to raise a flag given that Scotiabank had led a syndicate of lenders last December who had arranged $500-million in financing for the Canadian retailer.

Sears Canada's special committee decided to let it rest, because in the words of a source close to the board, "Do you really gain anything by having Scotia disqualified [as advisor]?"

On Feb. 21, Sears Holdings' offer was unanimously rejected by the six independent directors on Sears Canada's board -- four directors who are officers and directors of the parent company abstained from voting. The reasons cited included that the offer was "financially inadequate"; that it was "significantly below the valuation range" of $19 to $22.25 provided by Genuity; and that the bid "exerts pressure" on minority shareholders.

The Sears Canada board also noted that the $16.86-a-share offer did not consider the impact of cost-cutting measures made by Sears Canada in 2005 to improve its financial results. According to a presentation made to bankers late last year, Scotia Capital identified $301-million in cost savings at the Canadian retailer, compared to the $95-million Genuity accounted for in its valuation. As a result, the board believed the Sears Canada shares were being undervalued in the takeover bid.

A couple of days after they issued the rejection circular, the six independent directors also gave notice that they would not stand for re-election to the board at the May 9 annual shareholders' meeting.

For its part, the U.S. parent, which also owns Kmart stores, expressed disappointment that the Toronto-based subsidiary had snubbed its offer. Referring to Genuity's valuation report as "flawed," Alan Lacy, vice-chairman of Sears Holdings, said the Illinois-based parent company remained "committed" to its $16.86 offer price.

On March 20, Sears Holdings extended its offer to March 31 and declared that if it was not able to acquire a majority of the minority shares in Sears Canada, the U.S. parent would eliminate the subsidiary's practice of paying quarterly dividends. As well, Sears Holdings said it would appoint new directors from its own ranks to the Canadian subsidiary.

Nonetheless, Sears Holdings increased its bid to $18 a share on April 4 and announced that it now planned to privatize Sears Canada. To do that, the U.S. parent company indicated that rather than try to secure 90% of Sears Canada's shares, which under securities laws would have allowed it to squeeze out any hold-outs and force them to tender without a shareholders' meeting, it would try to push through the transaction at a special meeting of Sears Canada shareholders.

To achieve that end, Sears Holdings would need to obtain two-thirds of all Sears Canada shareholders, and a so-called "majority of the minority," which is 50% plus one share of those shares it doesn't already own. In other words, Sears Holdings needs to secure 23.1% plus one share of the 46.2% of the common shares of the Canadian unit.

To further its cause, the U.S. parent company revealed on April 9 that it had secured "support agreements" with an unnamed group of shareholders who agreed to tender their shares to the $18 offer, even though Sears Canada's stock price was in the $18.50 to $18.75 range on the Toronto Stock Exchange that day.

As well, these "certain shareholders" also agreed to endorse the privatization of Sears Canada by the end of the year. With that, Sears Holdings extended the expiration date of its $18 offer to Aug. 31 and indicated that the going private transaction would not be completed until December.

The special committee at Sears Canada began a review of the revised offer and sought an updated valuation and opinion from Genuity. The Toronto-based investment firm again concluded that $18 a share was inadequate and restated that the shares had a fair market value in the range of $19 to $22.25 each.

At the same time, Sears Canada's special committee asked for a copy of the support agreements and the names of the unidentified shareholders who agreed to tender to Sears Holdings, to help the board assess whether the shares that were committed could be voted as part of the privatization. The request was denied by the U.S. parent company.

On April 12, the Financial Post revealed the Scotiabank as being among the group of unnamed shareholders who agreed to tender their 4.5 million Sears Canada shares to the $18 offer. At the time, Mr. Switzer said the bank's shares in the Canadian retailer were placed on a restricted list and that all trading was ceased after Scotia Capital was hired in January to advise the U.S. parent in its proposed takeover.

He also said the bank's institutional traders obtained an independent legal opinion when they decided to vote the shares in favour of the privatization bid.

Even so, sources say Sears Canada's independent directors were concerned that Scotia's stake in the company was not disclosed in the offering circular. "You would have thought it was material to the public shareholders of Sears Canada to be told that the advisor who is making a fee is sitting on a truckload of shares," said an insider who asked not to be named.

In the end, Sears Canada's board unanimously decided on April 13 that it would not make a recommendation to shareholders about the revised offer because "there is sufficient information available for shareholders to come to their own conclusions as to whether to accept or reject the offer."

Once again, they repeated their intention not to stand for re-election to the Sears Canada board.

Meanwhile in Manhattan, three New York hedge funds threatened legal action to halt the transaction. Together, they own or control 8.24 million Sears Canada's outstanding common shares, and Pershing is entitled to the economic benefit -- not the legal and beneficial ownership --of an additional 6.9 million shares as a result of swaps the hedge fund entered into with SunTrust Capital Markets last November and December.

The unhappy shareholder group has urged those shareholders who have already tendered to withdraw their shares from the offer. Led by Mr. Ackman, who is known for persuading Wendy's International Inc. to spin off its Tim Hortons division earlier this year, the dissidents say Scotia's shares should not be counted as part of the minority because as advisor to the bidder, the bank is not independent.

"A majority-of-the-minority test can only be effective as a means of determining the fairness of a going private transaction if the shareholders voting in favour of going private are truly independent of the controlling shareholder/acquirer," Mr. Ackman said in an interview. "If, in fact, affiliates or agents of the controlling shareholder are allowed to vote in a squeeze-out transaction, then the majority-of-the-minority test can no longer serve its critical public policy purpose.

"In a world where the investment banker for a hostile bidder can cast the deciding vote, no minority shareholders' rights are safe."

Critics also argue Scotia is not a disinterested shareholder because it is entitled to collect a fee for its advisory work for the U.S. parent. It is common commercial practice for investment banks to earn fees for their work, which are determined by a number of factors, including whether a bid is successful.

Mr. Switzer would not comment on how much Scotia stands to collect from its retainer with Sears Holdings.

According to Ontario securities laws, the same class of shareholders is entitled to receive identical offers and no one should receive additional consideration for their securities.

Scotia's Mr. Switzer dismissed any suggestion that the bank received any added benefits. "We didn't get any collateral benefits," he said.

Mr. Switzer said the Scotia mergers and acquisition department was not aware that the bank owned shares in Sears Canada at the time it became an advisor for the U.S. parent in January.

"The M&A advisory team had nothing to do with the decision to vote the Sears shares," he said. "It was completely unrelated to the advisory agreement."

It is believed that Scotia's decision to tender its 4.5 million shares at a price below the valuation and less than the market price, was made on a tax-advantage basis.

Sources familiar with the complaint to the OSC say the dissenting shareholders estimate that Scotia could gain a tax loss deduction worth about $50-million as a result of its arrangement to tender its 4.5 million shares at the end of the year. By holding on to its Sears Canada shares for more than 365 days, Scotia would be permitted under the federal Income Tax Act to receive a tax-loss deduction.

According to sources familiar with the bid, the tax-loss benefit is available to a small subset of minority shareholders who are Canadian corporations that purchased Sears Canada stock before last December and have not yet tendered to the offer and who plan to hold on to the shares until the end of the year.

In the case of Scotia, price is not an issue because of complicated financial transactions that allowed the bank to purchase the shares and hedge the risk. That means that Scotia has no economic exposure to the stock, but maintains the legal and voting rights to the shares.

Sources say Mr. Ackman's group has asked the OSC to halt the U.S. parent's takeover bid until Scotia's fees are publicly disclosed, as well as its stake holdings in Sears Canada. The complainants have also requested the commission order Sears Holdings to reveal publicly the identities of the unnamed shareholders who have supported the privatization before the May 9 annual shareholders' meeting in Toronto.

Another battle over Sears Canada
By Zena Olijnyk – Canadian Business Online
April 18, 2006

The war over the privatization of Sears Canada rages on. The latest battle pits activist hedge fund manager Eddie Lampert, chairman of Sears Holdings Corp. — created out of the merger of Sears and Kmart — against another hedge-fund titan, Bill Ackman of Pershing Square Capital Management. Ackman is best known for persuading Wendy's International to spin off its Tim Hortons division. In this case, he perhaps has been a little too clever for his own good, and what seemed like a good financial move (from a tax point of view), when he entered into some complicated derivative swap arrangements last year, has come back to haunt him.

That's why Ackman is now turning to the courts to come to the rescue, announcing in mid April that he and other dissenting shareholders have formed a group to oppose Sears Holdings "coercive efforts" to take the Canadian subsidiary private. "The group intends to take all appropriate legal action to halt the transaction so Sears Canada remains a public company," the group says in a news release, "or alternatively, to ensure that those shareholders who desire to sell their shares in Sears Canada are treated fairly."

Lampert had declared victory in taking the Canadian subsidiary private, after upping his original offer for the 46% of Sears Canada shares that he didn't own to $18 from $16.86, saying he had a "majority of the minority" of shareholders. He based his supposed victory on the support from some of the retailer's largest minority shareholders, as well as a separate agreement with "certain shareholders" controlling the votes behind 7.6 million Sears Canada shares. These shareholders "have committed" to side with Lampert in a private transaction expected to close this December. With those commitments, Lampert will have acquired or received commitments of votes representing 25.6 million shares, or more than 50% of Sears Canada stock not owned by Sears Holdings when the original offer was made.

That's enough to take Sears Canada private, according to Lampert. Case closed, he says.

But hold on, says Ackman, whose funds own 5.6 million-plus shares (5.4% of outstanding stock). He calls the $18 offer "wholly inadequate" and will not tender his shares. In addition, Ackman claims Pershing Square funds are entitled to the "economic benefit" of an additional 6.9 million shares thanks to "cash-settled derivative transactions" with other parties that (coincidentally) terminate in December 2006. That would give him an 11.6% economic interest in Sears Canada. So now Ackman says he will pursue all legal avenues to ensure Pershing funds "receive fair value for their investments in Sears Canada."

He is joined in this legal battle by fellow investors Hawkeye Capital Management and Knott Partners Management. The group own or control 8.2 million shares, representing 7.7% of outstanding shares and close to 26% of the shares not owned by Sears Holdings. However, if you add the 6.9 million shares that are part of the derivative transactions, their total "economic interest" jumps to 14.1% of outstanding and 47.2% of shares not held by Sears Holdings.

But the big question is: Who controls the votes attached to the Sears Canada shares that were part of the derivative transactions? These types of derivative "swap" agreements are relatively common, allowing entities to receive the economic benefit of the shares of a company, though without the right to vote the shares. Ackman's Sears Canada swap transactions were likely part of a strategy designed to protect investors in Pershing funds from a Canadian tax bite. And through a series of these deals, Canada's Scotiabank now apparently has ownership of the voting rights attached to about 4.5 million Sears Canada shares. It has now exercised those rights, with a pledge to accept Lampert's offer and deliver those votes so that Sears Canada can be taken private in December.

Why December? Well, according to a research note written by Desjardins Securities analyst Keith Howlett and research associate Courtney McKay, under certain circumstances, investors can receive a special dividend from a company tax-free, hold the underlying shares for 365 days, and then sell them, claiming a capital loss because the share price is now lower than the purchase price by the amount of the special dividend. While no one involved has confirmed what motivations are at play, Howlett and McKay say their theory "conceptually provides" an explanation why the "certain shareholders" referred to by Lampert will not tender their shares to the bid, which expires Aug. 31, but will cast the decisive votes for the going-private transaction set to close in December. At that time, the shares of the "certain shareholders" would be acquired by Sears Holdings as part of taking the company private, at $18 a share.

In the case of Sears Canada, Howlett and McKay say shareholders were paid a special dividend of $14.26 per share and a tax-free return of capital of $4.38 per share last December. They estimate that the potential tax savings to a shareholder claiming a capital loss from this scenario amounts to $2.70 per share, using a 50% capital loss inclusion and a corporate tax rate of 38% on the $14.26 dividend. That is, so long as the 365-day holding requirement has been met. If not, the amount of the dividend would be added to the proceeds of the disposition, doing away with the capital loss.

What muddies an already complicated situation, however, is Scotiabank's relationship with Sears Holdings. The bank's investment banking arm, Scotia Capital, is the dealer manager representing Sears Holdings. Critics argue Scotiabank is not a neutral party. But a spokesman for the bank says it received a legal opinion before becoming the advisor to Sears Holdings; it also placed all trading of the Canadian retailer's shares on a restricted list, so Sears Canada shares have not been traded by Scotiabank since Scotia Capital was retained. As far as the bank is concerned, there is no conflict or breach of securities regulations.

But it looks like Ackman and his fellow dissenters are planning to fight Lampert through the court system, and that likely includes a hard look at Lampert's agreement with shareholders like Scotiabank. However, at least for the moment, the dissenters appear to have been outfoxed by an activist shareholder who is a more than worthy opponent. And perhaps it should be a lesson to Ackman and other hedge fund managers that if you're going to be an activist investor, it's easier when you actually own the shares outright — including the right to vote.

Sears Canada swings to Q1 loss of $11.8M
from year-earlier profit
By Rita Trichur – Canadian Business
April 27, 2006

TORONTO (CP) - Sears Canada Inc. (TSX:SCC), the target of a going-private move by its U.S. parent firm, has swung sharply to a first-quarter loss of $11.8 million, from a year-earlier profit, as sales revenue declined. The Toronto-based retailer also said Thursday it is continuing a strategic review as it strives to squeeze out more costs after undertaking a major restructuring late last year.

The department store operator's quarterly loss amounted to 11 cents a share and contrasted with a profit of $13.9 million or 13 cents per share a year ago.

Two analysts surveyed by Thomson Financial forecast a penny per share loss, excluding one-time items.

Pre-tax restructuring charges for the 13-week period were $5.5 million versus nil last year.

"This quarter's expense includes severance and related charges resulting from a workforce reduction in the company's logistics and transportation divisions," said Sears Canada, which has discontinued quarterly conference calls.

The charges, it added, relate to various productivity initiatives announced in 2005.

Last fall, Sears Canada slashed 1,200 jobs across the country to create annualized savings of about $100 million and improve productivity. It later eliminated about 190 jobs at distribution centres in two Ontario communities in March.

"The review of the company's operations is ongoing as is the implementation of opportunity improvements which are expected to lead to a cost structure that reflects a lean, profitable organization competing with the best of Canadian retailers," the company added.

Total expenses for the quarter were reduced by 12.6 per cent from last year, with about half of that reduction related to the sale of its credit-card division to JPMorgan Chase & Co. for $2.2 billion last fall.

Meanwhile, revenues for the period ended April 1 sank 7.5 per cent to $1.22 billion, from $1.32 billion, while same-store sales decreased 2.6 per cent. Sears Canada said the revenue drop was primarily due to the sale of its credit-card division.

"Now they are totally reliant on trying to make money in their merchandising division," observed John Chamberlain, a retail analyst at Dominion Bond Rating Service.

Wal-Mart Ripple Effect Strikes Again:
Cutbacks Weigh on Supplier Earnings
By Kris Hudson – Wall Street Journal
April 27, 2006

If Wal-Mart Stores Inc. just sniffles instead of sneezes, its suppliers sell fewer tissues.

The world's largest retailer by sales is pushing to cut its inventory costs, and many of its suppliers are reining in their quarterly sales and earnings forecasts to reflect the change. Ultimately, suppliers say, the retailer wants to pare $6 billion in inventory costs, or 20% of its year-end total, to boost its margins and returns. Wal-Mart denies setting such a target.

The inventory-slashing effort has jolted some of the biggest names in the household-goods and personal-care industries, many of which rely on Wal-Mart for 10% to 30% of their sales. Among those that have responded by lowering their quarterly goals before reporting their results in the coming weeks: consumer-goods titan Procter & Gamble Co.; trucking firm YRC Worldwide Inc.; and battery maker Spectrum Brands Inc. Feminine-products company Playtex Products Inc. yesterday indicated that Wal-Mart's cuts have affected it, and analysts anticipate that others, such as Clorox Co. and Chattem Inc., a maker of beauty products, fragrances and other household goods, will follow suit.

The adjustments momentarily spooked investors. P&G's stock sank more than 3% on March 14 after it blamed inventory reductions in cutting its quarterly projections for organic growth -- meaning sales growth outside acquisitions -- to a 5% to 6% range from 5% to 7%. The stock has since fallen an additional 3.3%. In 4 p.m. composite trading yesterday on the New York Stock Exchange, P&G's shares were up 74 cents to $58.01.

The stock of Spectrum plummeted 28% on April 6 after it blamed inventory reductions, skyrocketing zinc prices and slumping battery sales in chopping its forecast for second-quarter earnings to three cents to six cents a share from 35 cents to 40 cents. The stock has since recovered by about 4.1%, closing yesterday on the Big Board at $16.14, up 10 cents. Wal-Mart accounts for 18% and 16%, respectively, of sales by Spectrum and P&G.

"We've talked at length about the fact that we had a significant miss in [second-quarter] revenue in North America related to very tight control over inventories by some of our customers," Spectrum's president and chief operating officer, Kent Hussey, said at an investor conference earlier this month.

The reverberations of Wal-Mart's inventory cuts underscore the retailer's heft in the U.S. economy and with its suppliers. The Bentonville, Ark., company slashed its inventories in the mid-1990s, leaving its suppliers scrambling for several quarters to recover.

Even if Wal-Mart's latest cuts mean the retailer will order only 4% more merchandise from a given supplier this year instead of an anticipated 5% increase, that seemingly minor cut could significantly change the supplier's outlook. "Since Wal-Mart is such a big customer for these guys, that can move the dial for them in terms of their [quarterly] plan," said Tom Swoffer, a portfolio manager at investment-management firm Wentworth, Hauser & Violich in Seattle whose funds include shares of Wal-Mart suppliers PepsiCo Inc., P&G and Estée Lauder Cos. Wentworth manages $8 billion.

Some Wal-Mart suppliers have proved more resilient. Snack maker Hershey Co.'s stock sank 1.8% on April 20 after it reported "modest" first-quarter sales growth due to factors including inventory reductions by major customers. However, Hershey's stock has since gained 7.6%, closing yesterday on the Big Board at $53.52, $1.23 higher. Some suppliers say Wal-Mart gave them ample warning to prepare for the reductions, and they set their initial 2006 sales projections accordingly.

The inventory pullback reflects Wal-Mart's strategy to cut its costs and widen its margins by pruning the offerings in its stores. Wal-Mart is revamping its distribution system to allow more frequent delivery to its stores of fast-selling items such as paper towels and light bulbs, thus fueling sales gains without stockpiling inventory in stores. Wal-Mart also aims to cut any inventory in its stores that isn't on its shelves. That includes inventory in back rooms, on overhead shelves and in off-site warehouses near the stores.

Suppliers say Wal-Mart executives in January outlined a goal of paring up to $6 billion in excess inventory. Wal-Mart denies setting such a target and declined to make executives available to comment. Wal-Mart's chief financial officer, Tom Schoewe, has said the retailer is striving this year for its inventory growth to amount to half of its sales growth. In the past two years, inventory growth has nearly matched or exceeded sales growth.

As it whittles its extra merchandise, Wal-Mart still is determining which offerings -- called stock-keeping units, or SKUs -- in each category sell best in each store. Once it has made those determinations, Wal-Mart might start eliminating SKUs, analysts say. Adrianne Shapira, a Goldman Sachs Group Inc. analyst, predicts that such eliminations will begin in a year or two. She rates Wal-Mart's stock "outperform" and predicts it will reach $53 within 12 months. Goldman has done business with Wal-Mart in the past year.

Chief Executive Lee Scott said earlier this month Wal-Mart isn't dropping SKUs.

"It may take Wal-Mart a while to get through it, but I think it is going to be a one-time hit for most suppliers," said Bob Millen, a portfolio manager at Jensen Investment Management, an investment-management firm in Portland, Ore., overseeing $2.6 billion. His funds include shares of P&G, Colgate-Palmolive Co., PepsiCo and Clorox.

MindShare Takes Control of Kmart's Media Work
MediaCom Previously Handled $190 Million Account
By Matthew Creamer and Lisa Sanders – Advertising Age
April 26, 2006

Sears Holdings Corp.'s Kmart is shifting its $190 million media-buying and planning account to WPP Group's MindShare, which already handles Sears, Roebuck & Co., according to the marketer.

The move consolidates all of Sears Holding Corp.'s media duties at MindShare.

'Continued integration'
The account has been handled by WPP's MediaCom. "This in no way reflects on the outstanding work that MediaCom has done for Kmart since 2003," said a Sears Holdings spokesman. "It's part of our continued integration."

The move, effective June 30, consolidates all of Sears Holding Corp.'s media duties at MindShare. Kmart spent $190 million in measured media in 2005, according to TNS Media Intelligence. Sears Holdings spent $809 million in total.

Post-merger strategies
The media consolidation follows the merger of Kmart and Sears, a deal that closed in March 2005. In August, Sears consolidated creative duties with WPP's Y&R, Chicago, leaving Kmart at sibling Grey. That creative assignment is unaffected, the spokesman said.

Separately, MediaCom laid off 23 employees Monday as part of an effort to "reshape the organization for the future," according to Dene Callas, CEO of MediaCom US.

US Lobbyists Denounce Mexico's 'Nothing Gringo' Boycott
Wall Streerrt Journal Online
April 26, 2006

MEXICO CITY (AP)--U.S. lobbyists lashed out Wednesday at the Mexican "Nothing Gringo" campaign timed for May 1 to coincide with the "Day Without Immigrants" boycott in the U.S.

The American Chamber of Commerce in Mexico said organizers are risking a backlash and foolishly targeting some of their best allies, since U.S. corporations have actively lobbied the U.S. Congress for immigration reform, including legalization for many of the estimated 11 million undocumented migrants.

Mexicans' refusal to "buy American" on May 1 could further polarize the debate and make reform supporters seem anti-American at the very moment that lobbyists are trying to persuade lawmakers in Washington to pass a bill that would benefit migrants, worries Larry Rubin, the chamber's president.

"This is like shooting oneself in the foot," Rubin said. "U.S. companies have been the first to lobby, launching a huge lobbying effort for immigration reform. ... Why hurt something that is helping you?"

Migrants and their supporters in the U.S. are being encouraged to skip work and school and not spend money for one day to demonstrate the migrants' importance to the U.S. economy.

South of the border, Mexicans are targeting American stores and chain restaurants - "That means no Dunkin' Donuts, no McDonald's (MCD), Burger King (BKG.XX), Starbucks (SBUX), Sears (SHLD), Krispy Kreme (KKD) or Wal-Mart (WMT)," reads one email making the rounds.

But even activists are confused about which companies are U.S.-owned. Sears is cited by boycott organizers, despite the fact that Sears' Mexico stores were bought by Mexican billionaire Carlos Slim in 1997. And few organizers mention Vips - the chain of ubiquitous Mexican diners - even though they are owned by Wal-Mart Stores Inc.

A quarter of Mexico's formal private-sector jobs with regular pay are provided by U.S. companies, according to the chamber, including Walmex (WALMEX.MX), the Mexican Wal-Mart subsidiary that is the nation's biggest private employer with 140,000 workers. Delphi Corp. (DPHIQ), the U.S. auto parts maker, is second with 70,000 workers.

"Certainly, companies could be hurt," Rubin said at a news conference Wednesday.

The chamber represents more than 2,000 U.S. and other foreign companies doing business in Mexico, and says its members are responsible for $100 billion of investment in the country.

The companies say they are helping Mexico by providing jobs, but activists counter they pay so little that Mexicans have little choice but to head north.

Backers of the Mexican boycott insisted Wednesday that the protest could send a message that U.S. companies should offer better pay and benefits to their Mexican workers.

"They continue to exploit Mexicans with badly paid jobs and no labor rights," said Roberto Vigil, who works in the Mexico City office of the California-based immigrants rights group Hermandad Mexicana. "They're kind of two-faced: they support, but they exploit."

Unskilled workers at U.S. companies usually start with Mexico's minimum wage of $4.35 a day. While many earn more, such as seamstresses making an average of $5.89 a day - even these wages pale in comparison to paychecks offered by the same companies north of the border, conceded the chamber's Humberto Banuelos.

A cashier at Subway (or "sandwich artist," as the company refers to them) earns about $189 a month in Mexico City. In Colorado, Subway cashiers make four times that - $824.

Companies also often hire workers for three-month periods to avoid paying health insurance or other benefits, activists say.

"Yes, we are aware that they are the largest employers in the Mexican republic, but they are paying crumbs," said Martha Suarez Cantu, coordinator of Alianza Braceroproa, a Mexican labor-rights group helping organize the boycott.

The only way to stem immigration is to narrow the income gap between the two countries, said Robert Pastor, director of the Center for North American Studies at American University in Washington. He pointed to the European Union, where migration slowed after heavy investment reduced the income gap in its poorer countries.

Washington doesn't invest directly in job creation in Mexico. The U.S. Agency for International Development gave Mexico $31 million last year, but it went toward scholarships, tuberculosis, AIDS prevention and advice to lending institutions.

But raising wages would cause Mexico to lose ground to countries with cheaper labor, such as China and India. Felix Boni, director of equity research at Scotiabank's Mexican brokerage firm, suggested boosting Mexico's productivity and job growth.

"U.S. aid is not going to do it," Boni said. "It doesn't make sense to pour money into something that's broken. Mexico needs to make structural changes."

Kmart special: HQ garage sale
Bargain hunters snap up surplus office equipment,
supplies and more at Troy warehouse
By Tenisha Mercer - Detroit News
April 26, 2006

TROY -- Inside a cavernous room in Kmart's former headquarters, Margaret George picked over pieces of retail history -- Rolodexes from the 1970s, burnt-orange office chairs, $79 file cabinets and 50 cent binders marked "Holiday 2003."

Vestiges of Michigan's last national retailer have gone on sale, with hundreds of chairs, tables, office supplies, commercial kitchen equipment and a smattering of apparel being sold as part of a liquidation sale at Kmart's former complex on Big Beaver Road.

George and other customers inspected computers, rifled through old binders and sat at huge conference room tables. Some brought U-Haul trucks. And others just walked around the huge room where products were being sold -- a rare peek inside Kmart's closely-monitored, fortress-like headquarters.

It was a bargain-hunter's delight: $2.99 staplers, $4.99 in/out boxes, $75 computers and aisles of $149 tables. There was old Kmart merchandise, including $2.99 belts, marked down from $5.99. Commercial kitchen equipment was also for sale, including $1,275 refrigerators.

George, 48, of Sterling Heights couldn't resist snapping up a nicked, $25 bookcase cabinet.

"This isn't bad," she said. "It'll be pretty decent if you paint it."

Madison Marquette, a Washington, D.C.-based developer, purchased Kmart's headquarters in December. Plans for the 40-acre site include a luxury hotel, shops, upscale condos, offices and entertainment venues.

Kmart gave employees the first chance to buy merchandise, but extended it to the public this week, said Sears Holdings Corp. spokesman Chris Brathwaite. It's unclear how long it will last.

"We have a surplus of office supplies," Brathwaite said. "If folks are looking for a computer desk for their den, it's there."

Analysts say the sale indicates Kmart, founded as S.S. Kresge in Detroit in 1899, will maintain a smaller profile locally.

Kmart and Sears merged in a $12.3 billion in March 2005 to create Hoffman Estates, Ill.-based Sears Holdings.

"It's the kind of equipment they would need if they are going to have a very meaningful regional operation," said James McTevia, chairman of liquidation firm McTevia & Associates in Bingham Farms. "The message that they are sending is that they don't have many warm bodies in the Metropolitan Detroit area."

Martha Stewart CEO Doesn't Expect Products In Sears Stores
Dow Jones newswires
April 25, 2006

Martha Stewart Living Omnimedia Inc. (MSO) Chief Executive Susan Lyne refused to reveal any details of the company's recent home-goods partnership with Macy's Department Stores, but told analysts on the first-quarter earnings call that there will not be any Martha Stewart products in Sears Roebuck stores.

Eddie Lampert, chief executive of Sears Holdings Corp. (SHLD), had hoped he could expand the Everyday Living brand, now exclusive to Kmart stores, into the Sears stores. But the Macy's deal apparently trumped that.

"We're not going to comment on any of the specific terms of our Macy's deal but I think you can assume we will not be at Sears," Lyne said.

Martha Stewart Living signed a deal with Federated Department Stores Inc.'s (FD) Macy's unit earlier this month.

Shares of Martha Stewart Living (MSO) were up 4.2% recently to $20.56. Sears Holdings (SHLD) shares inched up 2 cents to $141.68.

A towering career in skyscraper safety
By Jon Anderson - staff reporter - Chicago Tribune
April 25, 2006

Well, there was the time that Spider-Man tried to climb the Sears Tower.

And another night when an activist from Greenpeace started up the skyscraper with a banner that said, "Save the Whales."

Both were situations that called for some delicacy on the part of building management.

As Philip Chinn put it the other day, e-mailing some memories from his retirement home in Florida, "Thank God for Leroy Brown."

Chinn was the building's general manager at the time. Brown was the late-night security supervisor.

With Spider-Man, Chinn recalled, "some of the macho younger members of the security staff wanted to block him with the window-washing equipment and then remove a window and grab him. Luckily, Leroy prevented such antics."

Similarly, the Greenpeace climber was allowed to descend peacefully--and safely. That, of course, is not how the average day goes for a security supervisor in a building the size of the Sears Tower.

Mostly, notes Brown, it's a matter "of being as vigilant as you can be."

Brown is, as they say, a noticing kind of person.

For 33 years, he has been involved in some aspect of security at the 110-story Sears Tower. He started on Feb. 1, 1973, when construction crews were still pushing upwards from the 88th floor, and that part of downtown, less developed than it is now, had more than its share of vagrants.

One of Brown's early duties was politely but firmly to evict those who sneaked in to camp out.

These days, with tightened security and screeners at every entry, there are new challenges.

"You learn to read people," Brown said last week, in an interview. "You get to know who belongs in the building and who doesn't. But you also learn to be as friendly as you can. You say, `Can I help you?' instead of `Hey, where are you going?'"

This week will be Brown's last at the 1,450-foot high tower, a mini city where 50,000 people a day come and go.

Brown, 62, will retire Friday. But it's not like he won't have anything to keep him busy.

He is the deputy mayor of the southwest suburb of Bolingbrook, where he has been a village trustee for 15 years. He hosts a cable access show on teen issues, is a district chairman for the Boy Scouts and is active in church groups. He's been married for 40 years to his high school sweetheart.

They have two sons.

But, say Sears Tower staffers, he will be much missed downtown.

"Sometimes, people are intimidated by him. He's a big guy. He has this powerful stature," said Michael Querfurth, who will take over Brown's post next week. "But when they meet him, they find he's a real genuine nice person, easy to talk to, good to deal with."

Brown will be feted Wednesday at a retirement party in the skyscraper's 99th-floor conference center.

"Leroy knows everybody's name," said Barbara Carley, the tower's managing director. "He's made this building friendly, instead of being a big fortress."

Wal-Mart is fueling political furnace
By Ron Fournier – The Associated Press – Arkansas Democrat-Gazette
April 24, 2006

WASHINGTON — There is no candidate. There are no ballots. There won’t be an Election Day. And yet it may be the hottest, highest-stakes political contest in America today.

It’s the campaign against Wal-Mart.

A year-old effort to force the nation’s No. 1 private employer to change its business practices has evolved into a Washingtonstyle brawl: tens of millions of dollars spent by Republican and Democratic political consultants using polling, micro-targeting, ads, e-mails, direct mail, grassroots organizing and strategic “war rooms.”

Their fight centers on some of society’s most vexing trends, including the rising cost of health care, the painful realities of globalization and the waning relevance of organized labor.

“Our opponents have organized the likes of a political campaign against us,” said Bob McAdam, vice president of corporate affairs at Wal-Mart. “It would be nonsense for us not to respond in a similar fashion.”

Wal-Mart’s main opponents are the Service Employees International Union, which started Wal-Mart Watch, and the United Food and Commercial Workers International Union, which funds a separate campaign called WakeUpWalMart. com.

After failing to organize employees of Wal-Mart Stores Inc. with traditional tactics, the unions decided to use modern campaign and communication methods to drag the company into the public square and try to shame it into change.

Both groups have hammered the world’s largest retailer about its wages, health insurance, treatment of workers and proclivity for buying non-U. S. goods. Wal-Mart has responded with counterattacks and a multimillion-dollar public campaign to polish its image.

Both sides use some of the best political strategists money can buy.

WakeUpWalMart. com is run by Paul Blank, political director for Howard Dean’s 2004 Democratic presidential campaign, and Chris Kofinis, a former political professor who helped draft Arkansan and retired Army Gen. Wesley Clark into the same race.

Their campaign has all the markings of the Dean and Clark insurgencies — a snappy Web site, volunteer action lists and an issues-based grass-roots campaign.

Those lined up against the company at Wal-Mart Watch include Jim Jordan, campaign manager for 2004 Democratic presidential nominee John Kerry, and Terry Holt, a spokesman for the 2004 Bush-Cheney campaign.

Odd bedfellows: A Republican working for unions against Wal-Mart.

“Wal-Mart is giving capitalism a bad name,” Holt explained. “It’s lost touch with its small-town roots and has become a company that is depending on corporate welfare... and an all-too-cozy relationship with China.”

Under fire, Wal-Mart turned to Reagan adviser Michael Deaver, Bush-Cheney political director Terry Nelson and several Democrats, among them civil-rights leader Andrew Young and campaign strategist Leslie Dach.

Talk about odd bedfellows: Democrats working for Wal-Mart against organized labor.

“We were being attacked. We wanted to hire people who knew how to respond,” said Wal-Mart’s McAdam, formerly a GOP aide on Capitol Hill and political strategist for the tobacco industry.

WakeUp-WalMart. com claims 212, 000 supporters whom a computer stroke can mobilize to recruit members and participate in media events designed to shine a bad light on the Bentonville company.

The group also passes out Food and Commercial Workerssponsored workers’ rights material outside Wal-Mart stores.

The union aims to show Wal-Mart’s 1. 3 million U. S. employees, many of whom have a low opinion of unions or fear retribution if they organize, that unionized labor can change their workplace and lives for the better.

THE STAKES

In its own way this campaign over Wal-Mart carries as much importance as the congressional races this year. Bringing Wal-Mart to heel with 21 st-century tactics would signal a fresh approach for organized labor after a decades-long decline in membership. At stake for Wal-Mart is the future course of a company with $ 312. 4 billion in sales in the fiscal year that ended Jan. 31. Its stock has fallen 20 percent over the past two years, and the company has had trouble sustaining its historically high rates of profit growth. Analysts say bad publicity from the union-backed campaigns may be hurting Wal-Mart, though unrelated business pressures also factor in.

Wal-Mart denies that the union-backed campaign has hurt its bottom line. But the company sees the effort as a threat.

After Maryland’s Legislature passed a labor-backed bill requiring companies — Wal-Mart in particular — to spend more on workers’ health insurance, the Arkansas company came out with improvements in its health-care coverage.

Wal-Mart also has announced plans to: Help competing local companies stay in business. Expand its share of the Hispanic market.

Sell more environmentally friendly products.

A multimillion-dollar advertising campaign featuring testimonials of happy customers and employees cast Wal-Mart as a good corporate citizen.

Wal-Mart hired Nelson to wage a grass-roots campaign by recruiting Wal-Mart shoppers and local leaders sympathetic to the corporation’s cause.

In the union camp, both groups send opposition research on Wal-Mart to reporters and e-mail supporters and stage such events as rallies and documentary film screenings.

They have had an impact.

Maryland-style health care bills have come up in more than 30 states. Democratic candidates in Ohio, Arizona and Pennsylvania have spoken out against Wal-Mart, as have elected officials in Wisconsin, Georgia, Connecticut and several other states.

Then there is Sen. Hillary Rodham Clinton.

The potential 2008 presidential candidate served on Wal-Mart’s board for six years when her husband was governor of Arkansas. Just two years ago the New York senator called her time on the board “a great experience in every respect.”

But now she does not want anything to do with the company. Citing “serious differences with current company practices,” her re-election campaign returned a $ 5, 000 contribution from Wal-Mart.

To this, Wal-Mart officials acknowledged that the company has become a political issue — at least for Democratic candidates who need labor’s money and organizing might.

“While not commenting specifically on Mrs. Clinton, apparently there are those who want to appeal to union leaders regardless of what office they’re running for and whether they want to do what union leaders want done,” McAdam said.

Avoiding the Volunteer Trap
By Kelly Greene – The Wall Street Journal
April 24, 2006

Rita Vance retired three years ago, at age 58, to devote herself full time to volunteering after winning a battle against breast cancer.

With 30 years' experience in social work at nonprofits and government agencies, she relished the idea of sidestepping the meetings involved in such settings and spending all her time with people in need.

Instead, her first foray into volunteering found her sitting through meetings at a group focused on aging in Ashland, Ore. -- and dishing up cafeteria-style meals at a senior center.

"They just needed a body to do that job," Ms. Vance says, "and they weren't really interested in what else I could do."

With retirements beginning to stretch routinely into two -- or even three -- decades, many older Americans are assuming that volunteering will become a natural and fulfilling part of their post-work lives. That belief, though, is about as far as most people get in their planning. As a result, many retirees like Ms. Vance wind up in volunteer positions that turn out to be dead ends. Sometimes, the tasks that retirees raise their hands for don't fit their skills, or the position just isn't what the person expected.

"If you want [volunteering] to be a significant part of your life, then it's likely going to take some work to figure out the right fit," says John Gomperts, chief executive of Experience Corps, a nonprofit based in Washington, D.C., that pays 1,800 older adults small stipends to tutor schoolchildren in 14 cities. "Sometimes you take a very bumpy road to a very beautiful place. So it may be with finding just the right opportunity to engage in volunteer activities."

The hard work could pay off in more ways than you think. A two-year study of 128 volunteers between the ages of 60 and 86, who were working with children in Baltimore schools, found that the volunteers -- when compared with a control group -- were in better health, burned more calories each week, watched less TV and reported having more people in their social networks.

There also are more opportunities to choose from. The steady increase in two-worker families means that nonprofit groups have lost much of their volunteer base and, thus, are scrambling to recruit help. Hands On Network, a volunteer clearinghouse based in Atlanta that serves more than 50 communities, is trying to increase volunteerism by 10% over two years, says Michelle Nunn, the group's chief executive. The group is counting on a new partnership with AARP, the membership group for older Americans, to help meet that target, mainly by recruiting retirees to help direct projects and reel in other volunteers.

So how can you find the right setting in the shortest amount of time? We put that question to retirement consultants, nonprofit executives and retirees who have found a good fit in volunteering, often through trial and error. Here's their advice:

IDENTIFY WHAT INSPIRES YOU

It might sound obvious, but almost every person we spoke with urged would-be volunteers to take the same first step: Identify a cause -- a mission -- that inspires you. Again, that might seem evident, but it requires time and reflection, and few people make the effort.

"It's an ethical, spiritual question," says Mary Westropp, who handles volunteer placement for New Directions Inc., a Boston consulting firm that works with executives who take early-retirement packages. "What really matters to you? Is it housing and homelessness? Human rights? Education?"

WANT TO HELP?

If you're seeking ideas about volunteer work, try these groups and Web sites
• United Way (unitedway.org) Click on the "Volunteer" button to find positions in your area.

• Volunteer Match (volunteermatch.org) A popular Web site that lists thousands of ways to volunteer.

• Hands On Network (handsonnetwork.org) Click on "Volunteers" for links to local groups with volunteer opportunities

• Next Chapter Initiative (civicventures.org/nextchapter) A directory of Next Chapter centers across the country, many of which offer retirees guidance on volunteering.

• Newcomers Clubs (newcomersclub.com <http://www.newcomersclub.com/> 8) Newcomers clubs often invite guest speakers from nonprofit groups.

• RespectAbility Initiative (respectability.org) This initiative is evaluating nonprofit groups that work well with older volunteers.

Source: WSJ reporting

Ms. Westropp has found that many of her clients already have personal interests they can incorporate into volunteer work. That's not surprising, given older adults' experiences and aspirations. "We aren't talking about people in their 20s," she says. "These folks have lived a certain portion of their lives and want to feel satisfied that they've done their part to make this a better world."

Leslie Berry, a 65-year-old retiree in suburban Atlanta, spent a good part of her adult life overseas, raising four sons in six countries over 13 years. Some of that time was spent volunteering in local libraries and museums. "They were so quiet and orderly, and our life was so chaotic," she says.

After returning to the U.S. and settling in Georgia, Ms. Berry eventually found herself yearning, she says, to relive the experiences she had enjoyed in Thailand and Kenya, learning about local art. Three years ago, she discovered that Atlanta's celebrated High Museum of Art was seeking docents, just at the moment when she was reducing her hours working at a party-supply store. She applied, landed a position, and started nine months of training. Today, she spends two days a week at the High, taking classes from curators and leading fourth- and fifth-graders on tours of the museum.

A recent Monday morning found Ms. Berry and other volunteers consulting with a curator amid the museum's newly expanded folk-art collection. She is searching for ways to teach students about creating art from so-called found objects, a lesson they can use in their school projects.

Ms. Berry worried at first that her lack of art-history education would be a problem. But what's more important, she says, is that "you have to be deeply into art to do this."

DON'T BE AFRAID TO START AT THE BOTTOM

As in the business world, people who volunteer sometimes start with an entry-level position. Don't let that deter you.

Ms. Vance, in Oregon, wanted to volunteer at the library to select and deliver books to homebound readers. "But when I first went in to approach the library, they didn't really need people to do that," she says. "They wanted me to come in and help with orientations, setting up coffee." She took the job -- and eventually worked her way into the role she wanted. Now, she works with five people, often searching for large-print books from her home computer.

"Sometimes you aren't going to get the dream volunteer job," says Jeri Sedlar, a retirement-transition counselor in New York. "But it's the same mentality you use in a career -- like starting as a gofer at a publishing company to move up the ranks. Sometimes you have to think, 'I'll do the punch and cookies, but I'll let everyone know that my goal is this.' "

And, as when you were exploring careers, internships can help you vet opportunities -- and get a foot in the door, says Marc Freedman, president of Civic Ventures, a San Francisco nonprofit that promotes civic engagement among older people. "Maybe," he says, "you can develop your own internship where you rotate through two to three nonprofits that seem appealing, where you can try different roles and structures. You could even do it while you're still working by using vacation time."

KNOW WHEN TO MAKE A CHANGE

Some people may find it's more rewarding to try something completely different from their former day jobs when volunteering. Others, however, may be better off sticking with what they know.

Hazel Hutcheson, 71, is a former clinical nurse specialist who now volunteers with Ms. Berry and others as a docent at the High Museum. Before retiring seven years ago, Ms. Hutcheson had specialized in pain relief, working primarily with patients after surgery. The job, she says, was stressful but "very satisfying."

The same, though, couldn't be said for the volunteer roles she was offered in nursing: checking blood pressure, drawing blood for lab tests, and giving immunizations. Such tasks, she says, are "important to patient care -- but I didn't find them challenging." Instead, she sought a new challenge working in a different field with a different age group: children.

But Bob Williams found that using skills and knowledge from earlier jobs allowed him to settle into a volunteer role more easily and be more effective.

Mr. Williams, who retired as an investment banker at State Street Corp. in Boston a few years ago, joined YMCA Training Inc., a New Directions volunteer project where its clients help immigrants and low-income adults find jobs. At State Street Corp., Mr. Williams had spent much of his "mental energy looking for local people we could train to operate in a global market, but run our business in their own country," he says. "Now I'm doing the same thing. I'm finding really capable immigrants who never bothered to put down on their résumé that they ran a restaurant in their home country. Somehow they get it in their minds that their experience back home doesn't matter here."

IT'S ALL RIGHT TO BE SELFISH...

Of course, you want to do something meaningful as a volunteer, and that's reward enough. Or at least it's supposed to be. But the biggest incentive for many volunteers is what they get from the work -- whether it's freebies from, say, the local theater group, or pats on the back from a nonprofit's leadership, or the simple satisfaction that comes from meeting and making friends with other volunteers.

"People tend to focus very heavily on the idealism of this phase of giving back," says Mr. Freedman at Civic Ventures, who has participated in focus groups with volunteers who have recently retired. "But when you talk to people who are involved [as volunteers], they say there are more immediate aspects that appeal to them. The relationships and a sense of purpose are just as important as some of the more lofty ideals in getting a satisfying experience."

Rich Yurman, in his work as a volunteer in San Francisco, gets to feed his desire to be a grandparent and compose poetry. For eight years, the 68-year-old writer and retired teacher has tutored schoolchildren, mostly Asian immigrants, through Experience Corps. He turned to the organization after several years of working with a counseling group for abusive men and hearing how many had been abused as children. Plus, "I hit age 60, and this sudden surge of wanting to be a grandparent came out of who-knew-where," he says. "I have children who are not going to have children."

This year, Mr. Yurman is working one-on-one with a third-grader whom he calls an "amazingly intense" poet. She jots down ideas to write about in a little notebook he persuaded her to carry around. Among her material: notes from her family's gambling trips to Reno, Nev. One day a week, the young girl and Mr. Yurman get out the notebook, "she picks out a topic, and we both write about it," he says. "It's just grand."

...AND TO PROTECT YOUR TIME

Just because you have more free time in retirement, you don't -- and shouldn't -- have to waste it.

"As I dedicate hours a week to doing [volunteer] work, I don't want the organization to take [unfair] advantage of that offer of time," says Mr. Williams, the retired investment banker. "The thing you find out when you retire is that you think you're going to have an awful lot of time, but you don't. It's a precious commodity."

When Mr. Williams, 57, decided to retire a few years ago, he wanted to make his family -- particularly his wife -- his top priority, since his career often had come first. Volunteering and a Chinese investment venture came second and third.

But even with that planning, Mr. Williams says, it's been hard to keep control of his time. For example, he learned to fly while working in Australia years ago and has a pilot's license. But after retiring, "I gave up flying for about a year and a half because I didn't have the time."

After two years, Mr. Williams says he finally feels like he's starting to find a good balance between volunteering and personal time. He dedicates two or three hours on most Mondays to the job-training project. And he spends the equivalent of a day and a half each week working on fund-raising and planning projects as a board member for Angel Flight New England. While working, he volunteered as a pilot for the nonprofit group, flying families needing sophisticated medical treatment from small-town airfields to big-city hospitals.

"I was surprised at how hard it was to get yourself organized and make it all work," he says. "By saying no sometimes, it seems I'll be able to do all three things at a level where I'm comfortable."

LOOK FOR GOOD TRAINING

Nonprofit groups and social-service agencies aren't all structured alike. A library, for instance, may have a few volunteers to shelve books, without being set up to offer frequent orientation, training, field trips and lectures solely for its volunteers.

In contrast, groups organized to train and put volunteers to work tend to offer more educational opportunities, chances to mingle with fellow recruits and greater recognition -- all of which may take on increasing importance in volunteer work that replaces a career.

Mr. Yurman, for instance, was drawn to Experience Corps by its speedy response to his inquiry about volunteer opportunities. He met with an Experience Corps coordinator for an hour and quickly discovered that he and the organization were "on the same page on how to deal with kids." He was hired and fingerprinted, and did several one-hour training sessions. "Within a couple of weeks, I was introduced to my first kid," he says.

Most important, Experience Corps offers continuing training and promotes interaction among its volunteers. "We go through exercises," Mr. Yurman says, "and you find out there are people doing this who have lived amazing, diverse lives."

HIRE YOURSELF IF NECESSARY

If you can't find a volunteer activity or position that interests you, create your own.

Steve Weiner, a 66-year-old retired university administrator in Piedmont, Calif., spent the first six years of retirement, starting in 1996, as "trial and all errors -- nothing painful, but just paths that I went down that I didn't want to stick with," he says. He volunteered as a consultant for a nonprofit group and served on a few boards. "I enjoyed them, but they didn't prove meaningful to me."

So, in 2002, Mr. Weiner and a colleague created the Campaign for College Opportunity, a nonprofit advocacy group trying to make sure that California's higher-education system will continue its tradition of admitting all qualified students who want to enroll. Since 1960, such access has been all but guaranteed under California law -- but a lack of funding and limited classroom space now threaten that promise.

Mr. Weiner's lobbying work has "called on all the knowledge, experience and relationships that I had developed before," he says. "I had to join with others to create entirely new enterprises [for] this particular point in my life."

On the East Coast, Jim Beaton, a 66-year-old retiree who managed real estate as vice president of corporate services and facilities for New England Financial Corp. in Boston, became intrigued when he heard about an effort to start a farm on Cape Cod. The nonprofit venture, called Dana's Fields, hopes to rehabilitate homeless people by teaching them basic skills involved in running a small business, such as cooking, maintenance, and using a computer.

The project, part of the Housing Assistance Corp. in Hyannis, Mass., didn't really have a single person to guide it through what has proved to be a contentious approval process. Enter Mr. Beaton.

"I had gone through the rigorous process of [obtaining permits for] a large office building in Boston, and I used to tear my hair out, saying, 'My God, it shouldn't be this difficult to do things,' " he recalls.

Mr. Beaton offered to serve as head of a committee to get the farm off the ground. This time, he didn't mind the obstacles. "It became kind of a mission for me," he says. "We've managed to get to where we are with [almost] no funding, other than some grants from the Boston Foundation and pro bono work, local churches' fund raising, and a walk for the homeless. It's been a real bootstrap operation."

STAY (VERY) FLEXIBLE

Finding the right volunteer work can be tougher than finding the right job. Often, expectations are impossibly high: You're newly retired, eager to "make a difference," and convinced that you and your talents are needed and welcomed. Perhaps you've even taken a hard look at an organization or a cause and you're confident that the fit is right. And then, after a month or two, you're looking for the exit.

Remember: Volunteer organizations, for all their good intentions, can be as unpredictable as any business, experts say. Leaders come and go; missions change; budgets expand and shrink.

Patricia Weiner, a 63-year-old retired lawyer and Steve Weiner's wife, tried three volunteer positions before finding the right one. While she was still working, she read a book about Court-Appointed Special Advocate programs, in which volunteers speak for abused and neglected children in courts. "I really thought that CASA was going to be the one thing that I was going to want to do for years and years," Ms. Weiner says. But she grew frustrated when the foster child she was assigned to represent was moved to another county. Sadly, the two were "just about at the bonding point," Ms. Weiner recalls.

Next, after joining the board of the Family Violence Law Center, Ms. Weiner realized she didn't want to attend meetings at night. And after she and her husband read to the blind for an hour a week for two years, they grew tired of the half-day commute involved.

Now, Ms. Weiner works with the first free-standing children's hospice in the country, leads school tours at the Oakland Museum of California, and also works in the book section of the museum's annual "white elephant" sale.

"I do think there is some trial and error, and it is healthful," she says. "I'm not sorry I did any of them." And they helped her narrow her focus to helping children. "It wasn't conscious -- I just brought together things I cared about and where other interesting people were involved."

--Ms. Greene is a staff reporter for The Wall Street Journal in Atlanta.

Scammers take money and run away at Sears
Do the right thing - Times Herald Record – Middletown, NY
April 23, 2006

I got a call the other day from a Middletown businessman who said he'd just gotten scammed at Sears. But it wasn't Sears who'd scammed him.

The businessman doesn't want his name published, but says he called me because "I'm just trying to keep someone else from getting duped."

I'll call him "Chad."

He was at work last Tuesday when he got a call from a guy who claimed to be with the company who collected Chad's trash. "He knew the name of our garbage company," Chad recalled.

The guy told Chad he had a brother named Tony who was a foreman at the Sears department store in Yonkers, where there was a chance to get some great deals on discontinued electronics - laptops, TVs, digital cameras. Would Chad be interested?

Sure, Chad said. He gave Tony a call.

"He gave me model numbers and everything," Chad told me. "I looked them up, and it was true, some of the stuff was discontinued."

Chad said he'd take two laptops and two TVs. Tony said the total price would be $3,300 - cash only. Be there at 4:30 p.m.

On Wednesday, Chad headed down to Sears in Yonkers and drove around back to the pickup bay.

He was met by a dark-haired woman in a black business suit, wearing a Sears badge. She said she was Joanne, Tony's secretary. "Let me go get your receipts and get you loaded up," Chad remembers her saying.

The woman then went through the doors into the warehouse while Chad waited.

And waited.

After five or 10 minutes, Chad called Tony, asking where Joanne had gone. She'll be right out, Tony assured him.

Chad waited a few more minutes. No Joanne.

He called Tony again. No answer.

Chad went through the store and found a manager. "He said there was no Tony who worked there, and there was no Joanne who worked there."

Chad went to the store's security supervisor.

You just got scammed, the security guy told him. It happens every year. We don't do business like that - you should have known.

Sears didn't call the cops, and neither did Chad. "The security people at Sears said I could call the police, but it's likely they could arrest me for trying to buy stuff out the back door," Chad said. "As far as I knew, I was buying discontinued items. I didn't know what to do. I was a long way from home."

The next day Chad called the Sears corporate office in Chicago.

"They said I should have called the police," he told me.

After Chad contacted me, I called Chicago and reached spokesman Chris Brathwaite.

This has happened at other Sears stores, Brathwaite said. It happened in Rego Park just a few months ago, and it happened to a bar owner in Massachusetts who was promised big-screen plasma TVs for just pennies on the dollar.

"All of our stores have been notified that this scam is going on," Braithwaite said. "People are tricking people into going to Sears to get stuff. They move from store to store."

Brathwaite said another alert would be sent out to Sears stores. Some are increasing security in the pickup areas, and they are considering posting a warning to customers.

"The gist is that is we don't sell things outside our store for cash," Braithwaite said.

Chad says the scheme was "unbelievably well organized."

"Everybody says, 'How could you be so stupid?' But anybody in my shoes would have done the same thing. You're inside a store. You wouldn't think anything like that would happen."

But that's the whole idea of a scam.

Been ripped off? Having problems with a product or service in the private or public sector? Christine Young writes a watchdog column for the Times Herald-Record. Send the details of your problem to her from the recordonline website, www.recordonline.com

Sears holdout shareholders plan legal action
By Rita Trichur – Canadian Press – Globe and Mail, Canada
April 22, 2006

TORONTO -- Three activist shareholders of Sears Canada Inc. are threatening to take legal action against Sears Holdings Corp. in its $908-million bid to take its Canadian subsidiary private.

Hawkeye Capital Management LLC, Knott Partners Management LLC and Pershing Square Capital Management LP said yesterday that they have united to oppose the offer and will share legal costs.

They are also urging other minority shareholders who have tendered to the bid to withdraw their shares, fuelling speculation that others may join their group.

Holdouts have been digging in their heels ever since Chicago-based Sears Holdings, the Toronto-based retailer's biggest shareholder, suggested the deal was a virtual fait accompli earlier this month.

"These shareholders believe that Sears Holdings is engaging in coercive tactics to force the minority shareholders of Sears Canada to tender into an undervalued and unsupported offer," the firms said.

"As such, the group intends to take all appropriate legal action to halt the transaction so Sears Canada remains a public company or, alternatively, to ensure that those shareholders who desire to sell their shares in Sears Canada are treated fairly."

The group members, or funds controlled by them, own or control more than 8.2 million common shares of Sears Canada, representing about 7.7 per cent of the outstanding shares and 25.7 per cent of the shares not owned by Sears Holdings.

In addition, the Pershing Square funds are entitled to an additional 6.9 million common shares, or about 6.4 per cent of the outstanding common shares, under cash-settled derivative transactions that terminate in December.

That means the group's members have a total economic interest equal to about 14.1 per cent of the common stock and about 47.2 per cent of the shares not owned by Sears Holdings.

William Ackman, Pershing Square's managing partner, did not return telephone calls seeking further comment.

What's Right About Wal-Mart
Ideas – The Welch Way
By Jack and Suzy Welch – Business Week
May 1, 2006

Is Wal-Mart a force for good or evil in the world? -- Anonymous, Exeter, N.H.

We have heard this question again and again in recent months, but it was posed perhaps most fervently by the high school student above. He added: "You claim business is good for society -- but Wal-Mart destroys it."

Destroys it? No way.

Maybe it's politically incorrect these days to say this, but Wal-Mart helps individuals, communities, and whole economies prosper.

Without question, Wal-Mart is huge and getting more so. Its business model is threatening to rivals and its purchasing power frightening to suppliers. But that doesn't make Wal-Mart bad -- just a fat target for critics who, for reasons of their own, won't concede how Wal-Mart improves lives.

Take individuals. Most obviously, Wal-Mart's prices have a positive impact on the quality of life of millions of consumers. No other retailer offers so many good products for so little, from groceries to school supplies to medicine. The net effect: Wal-Mart does more to hold down household expenses than any social or government program.

In addition, Wal-Mart provides its employees with tremendous access to upward mobility, even those with modest educational credentials. There are stories galore of employees who started on the floor or as cashiers and worked their way up to management positions. And with Wal-Mart's international growth, you are now seeing career paths that can start in merchandising in Texas, move to logistics in Arkansas, and end up in divisional leadership positions in Europe and Asia. Only the military rivals Wal-Mart when it comes to providing training and opportunity for individuals who have no other way to break out of a paycheck-to-paycheck lifestyle and into a whole new world of possibility.

Wal-Mart's low prices and large workforce, of course, have a cumulative effect on the local and national economies where the company operates. Low prices keep inflation down, while the employees' purchasing power keeps demand high.

This is evil?

There are critics who claim that Wal-Mart destroys communities by wiping out mom-and-pop stores -- the little pharmacies, hardware, and grocery stores -- that took much better care of customers and employees. These critics are nostalgic for a time that never was.

Yes, Wal-Mart has meant the end of many local stores. And yes, at some of them, customers might have been greeted by name when they walked in the door. But those customers chose to shop at Wal-Mart when it came to town because low prices, apparently, meant more to their quality of life than a wave and a smile. No conspiracy, just the free market at work.

AS FOR TAKING BETTER CARE of employees -- nonsense. In most small towns the storeowner drove the best car, lived in the fanciest house, and belonged to the country club. Meanwhile, employees weren't exactly sharing the wealth. They rarely had life insurance or health benefits and certainly did not receive much in the way of training or big salaries. And few of these storeowners had plans for growth or expansion: Their lives were nicely set. That was good for them but a killer for employees seeking life-changing careers.

Critics also lambaste Wal-Mart for being brutal to its suppliers. Be it swing sets or beef jerky, you sell to Wal-Mart on its terms, or you don't sell at all.

We'd say this is pretty true. Wal-Mart's huge market share gives it enormous leverage. One of us (Jack) negotiated for decades with Wal-Mart buyers at General Electric , and they were never unethical or unfair. Just tough. GE won plenty of rounds and lost a few. But losing had its upside. It forced GE to look inside to see how it could do its job better by lowering manufacturing costs, for instance, or being more flexible in how a product was packaged.

Ultimately, prices stayed low, and the customer won. And that is what drives Wal-Mart -- keeping its customers satisfied -- and why it keeps increasing sales and profits.

Yes, there will be "casualties" of Wal-Mart's success: competitors that fold, jobs lost. But in that way, Wal-Mart is no different than Toyota. When Toyota arrived in the 1970s, it was accused of upsetting the status quo. Decades later most people accept that Toyota simply had a better way of doing business. Its value proposition to consumers was a wake-up call to the auto industry, raising standards and requiring companies that had lost their edge to reinvent themselves and start making better cars for a lot less. And that's the Wal-Mart story. It's a great company that helps consumers win and employees grow. And as long as it does, it will, too.

Jack and Suzy Welch are co-authors of the best-seller Winning (HarperCollins 2005).

In Tough Hands At Allstate
By Michael Orey - Business Week
May 1, 2006

Legal Affairs – Car Insurance

It's fighting accusations that its methods deny policyholders legitimate benefits

David Berardinelli is something of a bon vivant. The Santa Fe (N.M.) plaintiffs' lawyer collects fine wine, has chefs from local restaurants over to cook in his home, and restores classic Porsches. He's also about to become a published author.

His book, From Good Hands to Boxing Gloves, won't burn up the best-seller lists. But it's already making waves. It tells the story of the key role played by management consultant McKinsey & Co. in reengineering auto insurance claims operations at Allstate Corp. -- and it's a story Allstate doesn't want told.

In February, a New Mexico state court rejected Allstate's efforts to keep Berardinelli from publishing his book, which will be marketed to trial lawyers nationwide later this year. Since 2004, Allstate has been defying an order by the same court to make available public copies of some 12,500 PowerPoint slides McKinsey prepared for the insurer, which form the basis of the book. That's quite unusual -- big companies almost never ignore judicial orders. In a court filing, Allstate has characterized its actions as "respectful civil disobedience."

What is it that Allstate so badly wants to keep under wraps? In a written response to BusinessWeek, the insurer says the McKinsey material contains proprietary business secrets. The documents also present a clear risk to the company's reputation. The title of Berardinelli's book is drawn from a McKinsey slide that suggests that Allstate should treat some of its claimants with "boxing gloves," rather than with its trademark "good hands." Collectively, the documents present a portrait of business strategies that are at odds with the insurer's carefully cultivated public image. Rather than simply rushing to the scene of an accident and doling out cash, Allstate deploys a variety of systems set in place by McKinsey to make sure it pays the minimum necessary -- and it plays hardball with those who seek more.

Berardinelli, 57, has provided BusinessWeek an exclusive copy of a draft of the book, as well as more than 200 typed pages of notes he took on the McKinsey slides. His tale illuminates the largely hidden role McKinsey has played as a key architect of claims practices in use across the insurance industry today. In addition to advising Allstate, McKinsey has also done work for Farmers Insurance Group, USAA, State Farm, and Fireman's Fund. While many of the cost-reduction strategies McKinsey recommended at Allstate remain in place, some have been reined in following legal and regulatory challenges in several states.

EPIC WAR
Berardinelli's book is certainly a partisan one, written to support "bad faith" lawsuits that he and other attorneys have filed against Allstate alleging mistreatment of policyholders. He says that the McKinsey project, which lasted from 1992 until at least 1997, institutionalized aggressive practices aimed at enriching investors at the expense of customers. "When you strip away all the fancy jargon, all this is a plan for switching money from the policyholders' pockets to the shareholders' pockets," he maintains. In the decade after Allstate instituted the McKinsey program in 1995, the amount of money it paid out per premium dollar in car accident cases declined from about 63 cents to 47 cents, according to A.M. Best.

Mckinsey declined to comment, citing client confidentiality. But Allstate says Berardinelli's allegations are "unfounded and unproven." Rather than trying to cheat customers, the company says, its claims revamp was just good management: an effort to "become the premier claim organization in the industry." A major goal, it says, was to benefit policyholders by identifying "exaggerated and fraudulent claims." In its written response, Allstate further said its "processes are absolutely sound" and that its goal is "to investigate, evaluate, and promptly resolve each claim fairly, based on the merits."

The battle over the McKinsey documents is just the latest round in an epic, decades-long war between insurers and the plaintiffs' bar over access to one of the biggest treasure troves of cash ever created: the billions of dollars in premiums held by insurers to pay claims. For years, each side has cast the other as evil incarnate. In the early 1990s, when Allstate retained McKinsey, there was a widespread sense among insurers that they were paying too many illegitimate automobile-accident claims and that an aggressive plaintiffs' bar, fueled by a wave of newly allowed attorney advertising, bore much of the blame. One focus of the program McKinsey introduced at Allstate, called Claim Core Process Redesign (CCPR), was aimed at striking a blow at that trend.

But plaintiffs' attorneys around the country allege that various elements of CCPR go beyond eliminating fraudulent claims and operate in a systematic way to deny policyholders legitimate benefits. Copies of Allstate's massively thick CCPR manuals have been circulating among trial lawyers for years. Although plaintiffs have had piecemeal success in bad-faith cases against Allstate, the insurer points to seven court rulings that have rejected attacks on CCPR. Last December a Montana state court noted that while CCPR practices may be illegal "if misapplied in a particular case, they nevertheless are neutral with no manifestly illegal purpose."

Berardinelli is convinced that the McKinsey material could turn the tide. The documents "explain why McKinsey built CCPR," he says. In his book he compares Allstate to a vendor of canned peas and argues that the documents "show how McKinsey...deliberately designed Allstate's claim factory to arbitrarily 'underfill' every can of Allstate insurance."

He begins his story in 1992, when, Berardinelli believes, McKinsey made its initial presentations on the Allstate project. (Allstate confirms that it retained McKinsey in the early 1990s.) Berardinelli's notes on the McKinsey slides, which he has filed in court, show that the consultants' goals were far-reaching. The objective, according to notes on one slide, was to "radically alter our whole approach to the business of claims." The consultants also advised the insurer on what steps were needed to achieve those ambitious goals.

Just why Allstate brought in McKinsey at that time isn't clear. But Berardinelli notes that in 1993, Allstate's then owner, Sears Roebuck & Co., spun off 20% of the insurer to the public and distributed the rest of the Allstate stock to Sears shareholders two years later. Freed of their ties to the large and struggling retailer, Allstate executives could now connect their personal financial fortunes directly to improvements in the insurer's bottom line. Jerry D. Choate was president of Allstate's personal property and casualty operations when McKinsey was retained, and the notes on several McKinsey slides list him as a participant in the project. Choate went on to serve as Allstate's chairman and chief executive from 1995 through 1998. By the end of 1997 he had accumulated shares worth tens of millions. He could not be reached for comment.

Allstate's "gross opportunity" if McKinsey's plan were fully implemented, according to Berardinelli's notes on one slide, was $550 million to $600 million in savings, almost all of which would come from reducing claims payments, not from cutting expenses. The consultants then targeted several areas as presenting the greatest opportunity for reductions. Fraud was one, with one slide stating that "it may exist in approximately 11 percent of current claim volume," according to Berardinelli's notes.

DRY SPIGOT
Another major focus was on "subjective" injuries, meaning claims for such things as emotional distress and pain and suffering, as opposed to "objective" injuries, such as broken limbs. To get a handle on these claims, the notes on the slides show, McKinsey worked with Allstate to install Colossus, a computerized claim-evaluation system sold by Computer Sciences Corp. Colossus compares a claimant's injuries with a database of similar cases and recommends a settlement range. Plaintiffs' attorneys have alleged that insurers can "tune" Colossus to consistently spit out lowball offers.

Berardinelli's notes show one McKinsey slide stating that the system has been "extremely successful in reducing severities with reductions in the range of 20% for Colossus-evaluated claims." ("Severities" is insurance industry jargon referring to the size of claim payments.) In its written response to BusinessWeek, Allstate says that "Colossus is merely a tool used to assist in the valuation" of some bodily injury claims and that adjusters use their expertise to come up with appropriate settlements "on each individual claim."

One of the key elements of McKinsey's plan was reducing the number of claimants who turn to attorneys after an accident for help in collecting on their insurance. The consultants even forecast what the potential gains in this area would mean for Allstate's stock. A 25% drop in attorneys appearing in several categories of cases could add $1.60 to Allstate's share price, one slide states, according to Berardinelli's notes.

The boxing gloves slide was displayed in open court in a case against Allstate in Kentucky last year. It states that by "holding the line" on cases where accident victims hire lawyers, Allstate could achieve "a new distribution of settlement times" on subjective-injury claims. "By increasing the number of early unrepresented settlements," the slide says, Allstate could give 90% of these claims the "good hands" treatment, resolving them within about 200 days. But the slide shows the remaining 10% getting "boxing gloves" treatment, and a graph shows resolution of their claims taking as much as four years or longer.

In Berardinelli's view, this slide reflects what he sees as the current practice at Allstate. Claimants in the "good hands" category may get swift reimbursement, but they will end up with less than they're entitled to, he says. Those who hold out for more -- and retain a lawyer to help them get it -- face battering in the courts and potentially years of delay. "You can get your claims resolved promptly or fairly," he argues, "but not both." Allstate says some people hired lawyers because they were not familiar with the claims process.

Once the CCPR program was rolled out in 1995, the effect was quickly felt by the trial bar. "We would ordinarily settle one or two cases a month," recalls Whitney Buchanan, a plaintiffs' attorney in Albuquerque. But then, "Allstate simply turned off the taps."

In mounting a counterattack, plaintiffs' attorneys have had some success. Courts and regulators in a number of states, including New York, Pennsylvania, and Washington, have forced Allstate to halt or change its practice of handing out a controversial "Do I Need an Attorney?" form to people involved in accidents. And Colossus, now widely used in the insurance industry, has come under attack on a number of fronts, with attorneys alleging it is being used to lowball claims. Last year, Farmers Insurance Group, a unit of Zurich Financial Services, agreed in a nationwide settlement to stop using it for certain claims.

Loquacious and professorial-looking, Berardinelli began his quest for the McKinsey documents in a routine bad-faith suit he filed against Allstate in December, 2000, in Santa Fe County. In ordering Allstate to turn the McKinsey material over to Berardinelli, the trial judge ruled that the documents were not entitled to confidentiality but said Berardinelli had to treat them as confidential while Allstate pursued an appeal. If Allstate lost its appeal, the judge ruled, the confidentiality order would expire.

During this period, Berardinelli furiously took notes as he worked in the office of his home, perched in the southeast hills overlooking Santa Fe. The 12,500 pages -- a bit more than half of which are duplicates -- were on paper that contained background printing declaring them to be confidential.

It took two years for an interim appellate court, and then the New Mexico Supreme Court, to rule that Allstate's appeal failed because it had filed it one day too late. With the Supreme Court ruling in hand in March, 2004, Berardinelli returned the McKinsey material he had to Allstate and demanded a clean copy, free of the restrictive printing. Allstate refused, prompting the trial court judge to hit it with the most extreme civil sanction a court can order, a default judgment -- finding it liable without trial in the underlying bad-faith case.

Allstate is appealing that ruling. In a court filing, Allstate argues that Berardinelli's aim is not to have the McKinsey documents for use in a particular case but to be able to disseminate their contents to lawyers around the country. As he puts the finishing touches on his book manuscript, Berardinelli would be hard-pressed to disagree.

Desjardins apologizes for Sears comments
Marina Strauss – Retailing Reporter – Globe and Mail, Canada
April 20, 2006

Desjardins Securities Inc. apologized yesterday for comments made to the media by one of its executives about the battle by U.S.-based Sears Holdings Corp. to take its Canadian division private.

The apology comes after Sears Holdings, which is controlled by hedge fund giant Edward Lampert, sent a notice of libel to Desjardins.

Ronald Mayers, head of alternative strategies at Desjardins, "made statements regarding the current takeover bid by Sears Holdings Corp. for Sears Canada Inc. which could have been misconstrued," Desjardins said in its press release. Both Desjardins and Mr. Mayers own Sears Canada shares and oppose the deal.

The contentious views on the takeover were also addressed in analyst reports issued by Desjardins.

The takeover battle has been mired in controversy since Sears Holdings made its initial $16.86-a-share bid, which Sears Canada's board of directors rejected for being too low. The parent boosted its offer to $18 a share, and said on April 6 it had enough support to succeed after unveiling an agreement it reached with "certain shareholders." It did not identify the shareholders, but one of them is believed to be Bank of Nova Scotia, whose investment arm also acted as adviser to Sears Holdings on the transaction. Now a coalition of Sears Canada minority shareholders is threatening legal action to block the buyout.

"There is no basis in fact to conclude, and Desjardins Securities and Mr. Mayers unequivocally do not assert, that Sears Holdings Corp. has entered into any agreements, commitments or understandings collateral to the agreements to tender into the takeover bid announced on April 6, 2006," Desjardins said.

"Desjardins and Mr. Mayers apologize to Sears Holdings and regret any harm to Sears Holdings that may have been caused by statements made by Mr. Mayers and Desjardins Securities."

Desjardins wouldn't comment.

More Culture Changes at Sears Holdings
By George Anderson – Retail Wire.com
April 19. 2006

Aylwin Lewis, president and CEO of Sears, is looking to change the culture at the retailer, making it second nature for associates to greet shoppers and work as a team.

The focus on serving the customer and building teamwork is part of the "performance-based culture" that Edward Lampert, chairman of Sears Holdings, is looking to instill throughout the organization.

Group performance is linked to the company's plan to cap bonuses for top executives at $5 million a year or $15 million over three years. Mr. Lampert is looking to tie compensation for all employees directly to the company's ability to make a profit. Last year, the company cut benefits and bonuses to some salaried employees as it sought to improve bottom line performance.

According to a Chicago Sun-Times report, Mr. Lampert told shareholders at the company's annual meeting last week that the new management team in place at Sears Holdings has been put there to turn the business around.

"We took a lot of time putting this team together," he said.

Moderator's Comment: Should bonuses paid to retail employees, regardless of their position in the corporate hierarchy, be tied to group (company, department, store) performance measures alone? How do businesses go about creating company-wide compensation plans that all employees can understand and support? - George Anderson - Moderator

To properly develop a compensation system that is fair for ANY business (retail or other), the following need to be considered (this is not an exhaustive list):

Does it truly reward the performance it is intended to produce?

Is it accurately measuring performance results?

Is it within the control of the person being measured to change or impact results or contribute to results?

Is it accurately measuring the person's impact on those results?

Is it motivating?

Does it create an incentive to "win" by having someone else "lose?"

Does it encourage cooperation or competition? (and is that intentional or desired)?

Is it understood by the person(s) being rewarded?

Does it unfairly reward or incent results on factors other than performance?

We all have heard the bromide - Management can only expect results on what it chooses to inspect, because that is what employees think is worthy of respect. If you evaluate and reward based on a single variable - don't be surprised if that single variable (to the exclusion of other critical measures) is what you receive back in return.
David Zahn, Managing Partner, Clow Zahn Associates, LLC

I think bonuses need to be tied to various factors -- company, store, and department. They need to be set up so a bonus is achievable. Low level employees have no control of executive blunders, stock market prices, or competitive changes. Therefore, they should not be financially punished if some of the bonus criteria is out of their control. The bonus program should be structured so there is always a carrot on the stick but never out of reach.
David Livingston, Principal, DJL Research

Retailers with a true customer focus tend to do well even if merchandising, price and other elements are not the best. Examples that come to mind include Publix, Wegmans, H E. Butt and Trader Joe's. Too much emphasis on a single Key Performance Index has significant risk. In the case of Sears and Kmart, this is too little too late. It takes years to change the culture. Then it takes even longer for the consumers to appreciate it. How many consumers will never go back to shopping either of these names? How does one prove to these consumers that a change has occurred if they will not visit the store? Nice try, but 5 years from now Sears Holding will just be a memory with double digit like for like store sales declines.
W. Frank Dell II, CMC, President, Dellmart & Company

Hopefully there is more to the "cultural change at Sears" story than evident in this brief article. If not, we should make funeral arrangements. The apparent thinking that building high performance teams at Sears is simply a matter of a new comp plan explains fully how Sears found itself in this mess in the first place. Obviously compensation plans are part of the picture but aren't even close to being the whole picture.

What seems to be missing is an exhilarating sense of purpose and vision. That's the pilot-light of any cultural transformation. When you get employees seeing a meaningful purpose in their work and THEN you reward them well they'll climb any mountain you put in front of them.
Ian Percy, President, The Ian Percy Corporation

Here comes my pet company again. Privately owned, with all employees owning shares, everyone top to bottom got the same percentage of their salary as a bonus this year. This company is renowned for the loyalty of its employees, all referred to as partners. It is also renowned for excellent customer service and knowledgeable shopfloor staff. It is an innovative company and one of the few British retailers that made money during this past year. I think that says it all.
Bernice Hurst, Managing Director, Fine Food Network

If the objective is to build a team, then the more people tied into the results dependant on each other, the better. The more people know about what is going on, how it is measured and what is rewarded, than the more the team as a whole can focus and drive the truly important things a company needs to achieve to grow.
Charlie Moro, President, CFS Consulting Group, LLC

David Zahn did a great job on this, but here are a few additional observations. First, my own twist on the "inspect what you expect" parable goes like this. "You get activity around that which you manage and results around that which you reward." The other critical pitfall in having too much focus on group incentives is that the individual begins to lose touch with their ability to materially affect the outcome, and therefore the reward. This leads quickly to abdication of responsibility, apathy and some very robust cross-functional finger pointing.

It is much better for management to take the time to create an integrated market plan that spells out the details of what each department or function is expected to contribute. (E.g. Our plan calls for Advertising to drive incremental foot traffic of 5% and for Merchandising to reduce markdowns by 3%.) Then everyone knows exactly what they are expected to contribute. Functional or departmental roles can be further broken down into work team or even individual goals. No rule of thumb is perfect, but 50% corporate, 25% functional and 25% individual or team seems to work pretty well at balancing the variables.
Ben Ball, Senior Vice President, Dechert-Hampe

I like David's list and agree with those who argue that employees have to feel some measure of control over incentive pay. A bonus that is too disconnected from an employee's daily work is worse than no bonus at all. That's not to say that a group bonus can't be an important part of the mix, even the primary part of an incentive plan. But it is up to management to explain just how each employee contributes to the goal, then measure and, most importantly, communicate progress against the goal to those employees. A bonus should never be a surprise, either pleasant or unpleasant.
Jeff Weitzman, President & COO, Coupons Inc.

Sears' problems - at the moment - seem to be that they offer more negative reinforcement ( "my way or the highway" ) than positive; that and frequent changes in direction and management drawn from the idea-of-the-week playbook. Of course when everything has been falling apart for years, I suppose stability seems almost like a luxury good...too bad, because that's usually when it's needed most.
'csundstrom'

I think putting too much emphasis on Bonus plans is a mistake. People are hired to produce results. Is Sears hiring and then having to pay more to produce those results? Could it be that Sears is not paying employees enough and using the bonus as a Scrooge measure to try and get superhuman results out of employees that already deserve more? This typically results in "high pressure" tactics like "selling extended warranties" and advertising appliances and then charging extra for an electrical cord. I think Sears employees would appreciate management working a little harder to get customers in the door in the first place. If traffic rises and Sears floor personnel can stick to their high level of product knowledge and salesmanship, then Sears and their employees will be OK. If Sears management is using the latest from the MBA bag of tricks, then the good employees will go elsewhere (as many already have) and Sears lofty stock price will be a great place from which this management team may leap.
Ed Dennis, president, Dennis Enterprises

Sears a litmus test for takeover climate
By Andrew Willis – Streetwise: Retailing - Globoe and Mail.com -
April 19, 2006

Forget all the fascinating subplots arising from the Sears Canada takeover. Quite apart from larger-than-life billionaires who are now crossing swords, an important precedent is about to be set over what a public company is actually worth.

If you've been paying any attention to the merger and acquisition world lately, you've likely noticed that the Sears retail chain faces an $18-a-share takeover bid from its U.S. parent, which is controlled by star hedge fund manager Eddie Lampert. In a game where compensation is used to keep score, Mr. Lampert is the highest-paid money manager on the planet, earning more than a billion U.S. bucks a year after purchasing Kmart out of bankruptcy, then banging it together with Sears. But I digress . . .

While Mr. Lampert can count on majority support for his bid, a position that would allow him to legally squeeze out the rest of Sears Canada's owners, he faces a determined minority shareholder in Bill Ackman. He's the head of another hedge fund, called Pershing Square Capital, and he has also scored big by forcing Wendy's to cough out Tim Hortons and getting McDonalds to part with a Mexican fast-food unit, two moves that the market greeted with standing ovations.

The core issue here is what Sears Canada is actually worth. Mr. Lampert and the vast majority of investors say that if $18 is the best offer going, then that's the price.

But Sears Canada's independent directors hired an outside adviser when the takeover bid came in, asking Genuity Capital Markets to run the sums. Genuity crunched numbers nine ways to Sunday, putting the price at between $19 and $22.25 a share. After Mr. Lampert refused to hit this price, the independent directors quit.

Pershing, now allied with at least two other hedge funds, argues that the $18 bid is unfair and oppressive. Money managers take these stands all the time, but few have the stomach to actually take these battles through the courts. Pershing doesn't seem to be bluffing. The funds have hired Davies Ward Phillips & Vineberg to hammer home their point, which brings one of the more sophisticated business law firms in the country into the fray.

This battle has captured the Street's attention because just about every dealer and law firm is working on something similar; that is, a going-private transaction that targets a public company.

The source of these takeovers are the deep-pocketed private equity funds that are all searching for deals. The objects of their attention are mature Canadian public companies that no longer need to raise capital -- think Masonite or Cara, which were both taken out last year. Many of these companies are run by families who are tired of the hassles that come with a listing, or run by CEOs who are frustrated with a Street that just doesn't get it.

If public companies can be taken private at relatively bargain prices -- and let's be clear, Mr. Lampert is pitching a low-ball offer -- then leveraged buyouts are going to become more common. If, on the other hand, aggressive hedge funds such as Pershing can get more generous terms, then takeovers are going to be more expensive and difficult to mount. There's a buyout wave coming. The fate of the Sears Canada takeover will help determine how large that wave will be.

Where are they now?

When the tech boom went bust, many domestic dealers went from having a half dozen tech analysts to one or two. Ever wonder what happened to all that talent?

Byron Berry covered software plays and tech-focused special situations for Yorkton Securities, then National Bank Financial during the tech boom. He's now been reprogrammed, and re-emerged this week as a business trust analyst at Dundee Securities.

Two other analysts have followed a similar career path in recent years. National Bank trust analyst Gareth Tingling used to cover tech stocks, while Jason Zandberg covered tech for Raymond James before becoming a trust expert at Acumen Capital Finance Partners.

Execs face cash ceiling as Sears remodels culture
By Sandra Guy – Business Reporter – Chicago Sun-Times
April 18, 2006

Sears Holdings has capped bonuses for executives as it continues its move toward what Chairman Edward S. Lampert calls a "performance-based culture."

Bonuses will go no higher than $5 million a year or $15 million in a three-year period, according to the Hoffman Estates-based retailer's proxy statement filed with federal regulators.

Lampert, a billionaire hedge-fund manager who doesn't take a salary as Sears chairman, announced a year ago that many of Sears' employee benefits would be cut, and that their pay would be based on the retailer's profitability.

At that time, Sears employees already had had their stock-option grants and guaranteed pensions eliminated on Jan. 1. Sears also had ended company-subsidized retiree medical insurance to all new hires and to employees younger than 40, and dramatically cut bonuses to some of its salaried workers.

The measures are being imposed to try to make Sears more competitive with its lower-cost rivals such as Target and Wal-Mart. Sears President and CEO Aylwin B. Lewis is seeking to change the culture at the store level by requiring managers to train their underlings to greet shoppers, work as a team and institute systems that help shoppers find merchandise.

Lampert, who engineered Kmart's $12.3 billion takeover of Sears Roebuck a year ago, introduced a new and relatively young top management team during the company's shareholders' meeting April 12.

"We took a lot of time putting this team together," Lampert said, noting that he expects the top executives to turn around Sears' lagging performance. Sears Holdings' sales fell 5.3 percent in 2005 from a year earlier -- down 8.4 percent at Sears stores and 1.2 percent at Kmart.

Business school to bear former Sears chairman name
Dominican University honors Ed and Lois Brennan
Crain’s Chicago Business Online
April 18, 2006

(Crain’s) — Dominican University will rename its business school after former Sears Roebuck and Co. Chairman Edward A. Brennan and his wife, Lois, the River Forest school confirmed Tuesday.

The Brennans made a seven-figure gift to kick off a $10-million fundraising campaign for the school of business at what once was Rosary College. A formal announcement was scheduled for Tuesday night during a university event.

Mrs. Brennan is a 1955 Rosary graduate and a former trustee.

During nearly four decades with Sears, Mr. Brennan, now 72, rose from selling men’s clothes in Madison, Wisc. to become chairman in 1986. He retired in 1995.

Mr. Brennan was unavailable for comment, Dominican said, while he recuperates from recent surgery.

University President Donna Carroll said a larger endowment would help the 29-year-old business school gain accreditation and, with it, more visibility to attract students.

“It’s a young school, relatively, in a crowded business school market,” she said. “This gives us distinction, profile and opportunity.”

Dominican has about 600 undergraduates and 350 graduates enrolled in its business school, which specializes in business ethics, entrepreneurship and international studies. Besides an MBA degree, it offers master of science degrees in accounting, management information sciences and computer information systems.

Mr. Brennan is a former chairman of Fort Worth, Tex.-based AMR Corp. and its American Airlines Inc. subsidiary, where he remains lead director. He also sits on the boards of three of Chicago’s most-recognized companies: McDonald’s Corp., Allstate Corp. and Exelon Corp. Last year, he and several other directors left the board of Morgan Stanley after shareholder unrest at the Wall Street firm led to a management shakeup.

“Ed is just one of those individuals who’s driven by conscience in everything he does,” said Exelon Chairman and CEO John Rowe, who terms Mr. Brennan “perhaps the most diligent director I’ve ever worked with.”

Mr. Brennan has been a benefactor of alma mater Fenwick High School in Oak Park, another Dominican institution. He is also a graduate of Marquette University in Milwaukee.

Lois Brennan was born in Oak Park and attended Trinity High School, a Dominican-sponsored girls’ school in River Forest. She is a member of the board of the Boys & Girls Clubs of Chicago and serves on the women’s boards of Northwestern University and Rush University Medical Center.

“They grew up in the neighborhood,” said Ms. Carroll. “They courted at Rosary. They married the weekend after they both graduated from college. When I approached them, it was in the context of Lois’ 50th reunion and their 50th wedding anniversary.”

Allstate 1Q earnings blow away predictions
Crain’s Chicago Business Online
April 18, 2006

(AP) — Allstate Corp., a personal lines insurer, said profit rose 26 percent in the first quarter as the company collected more premiums and saw less damage to insured homes and automobiles.

Net income totaled $1.42 billion, or $2.19 per share, compared with $1.12 billion, or $1.64 cents per share, in the year-ago quarter. Consolidated revenue was $9 billion, an increase of 4 percent from the first quarter of 2005.

Analysts polled by Thomson Financial forecast earnings of $1.66 per share on $8.51 billion of revenue.

Underwriting income increased to $1.24 billion in the quarter from $981 million. The company said it is receiving less claims damage in its auto and homeowners lines.

The Northbrook company paid $3.87 billion in property and liability insurance claims in the quarter, a drop of nearly 5 percent.

The company increased its operating income per diluted share for 2006 to a range of $6 to $6.40, from the previously announced range of $5.60 to $6. Analysts forecast $6.08 earnings per share for the year.

Allstate reported the results after markets closed Tuesday. Shares had risen $1.53, or 3 percent, to $51.95 on the New York Stock Exchange before the announcement.

Wal-Mart Says Its Logistics Program
Is on Track to Be Completed by 2007
By Kris Hudson – Dow Jones newswire
April 18, 2006

BENTONVILLE, Ark. -- Wal-Mart Stores Inc.'s implementation of its Remix program for speeding merchandise through its distribution system remains "on schedule" for completion in 2007, providing the retailer hopes for a boost to its sales and returns on investment.

The program, which Wal-Mart began implementing last year, will shift Wal-Mart's distribution system to one that uses a portion of the retailer's 120 warehouses to store and distribute merchandise that sells out at Wal-Mart's stores rapidly, such as paper towels, most food items and light bulbs. In turn, Wal-Mart will designate the balance of its warehouses to store and distribute slower-selling fare such as toys, sporting goods and food items such as olives and pickles. The aim is to create a faster route to Wal-Mart's shelves for hot sellers, thereby boosting sales and avoiding stock outages.

Ultimately, Wal-Mart envisions the so-called Remix program helping it to boost sales, trim costs and widen its margins.

Wal-Mart so far has converted its warehouses in the southeastern U.S. to the Remix format. The company plans to begin distributing half of its entire portfolio of merchandise through the Remix program by the end of this year, and the other half next year, said Johnnie Dobbs, Wal-Mart's executive vice president of logistics, during a media tour of a Bentonville warehouse on Tuesday.

"We are tracking exactly on schedule," Mr. Dobbs said. "We've moved the slower moving-items from the grocery distribution centers to the general-merchandise facilities. One of the keys to that was the Replenishment team [paring] the inventories."

Wal-Mart now has crews in its warehouses installing new rack systems to accommodate the new routing of merchandise within the warehouses under Remix.

Another of Wal-Mart's logistics programs -- the introduction of radio-frequency identification, or RFID, for tracking inventory -- also is proceeding as planned, Mr. Dobbs said. Last year, 100 of Wal-Mart's suppliers began adding RFID tags to the merchandise they sell Wal-Mart. The retailer intends to add another 200 suppliers to the program this year, and 300 more next year.

Wal-Mart moved about two billion food cases and 2.7 billion cartons of other merchandise through its distribution system last year.

Wal-Mart Demotes Price-Slashing 'Smiley' In New Ads
By Kris Hudson and Ann Zimmerman – Wall Street Journal
April 18, 2006

Pity poor Smiley.

For 11 years the star of Wal-Mart Stores Inc.'s "always low prices" advertising, the frenetic, yellow, grinning face is only a bit player in much of the retailer's current campaign touting stylish "lifestyle" themes.

Upstaging him aren't the giddy Wal-Mart customers and employees with whom he shared camera time in the past. Instead, Wal-Mart's ads are using actors and celebrities to make low-key pitches such as "Save more, smile more" or "I came in for eye drops and discovered something eye opening."

In a sweeping overhaul of its mass advertising in the past year, Wal-Mart and its two ad agencies, Bernstein-Rein Advertising Inc. of Kansas City, Mo., and Omnicom's GSD&M, based in Austin, Texas, set out to entice well-heeled customers to shop for more than just basic goods like cleaning supplies, sweat socks and boxer shorts. The retailer, based in Bentonville, Ark., is aiming to spur more sales of high-margin general merchandise -- such as trendy apparel and housewares -- in a bid to boost its sluggish growth in same-store sales, or sales at stores open for more than a year.

One way to do that, as reflected in Wal-Mart's new ad strategy, is to appeal to shoppers' interest in an intriguing yet calm shopping environment rather than sending Smiley careening across their television screens.

Smiley "was a character that we dressed up, and we have tried to move from that to an emotion, a feeling," said John Fleming, Wal-Mart's chief marketing officer. "We'll see how it goes and evaluate it."

The "Save More, Smile More," ad, for instance, didn't scream Wal-Mart's low prices. Instead, it focused on well-priced products, with low-key smiles part of the landscape -- whether on a baby or in soapsuds. "With that ad, it moves from Wal-Mart smiling at you to the customer smiling," says Wal-Mart spokeswoman Gail Lavielle.

Mr. Fleming, a 19-year veteran of Target Corp., is the key executive behind the ad strategy, and the man who demoted Smiley to a supporting role. Mr. Fleming joined Wal-Mart's online division in 2000, and, after being named head of marketing last May, he now oversees a division that had a $1.6 billion ad budget last year.

In recent months, Mr. Fleming has recruited fresh marketing talent to Bentonville, including Frito-Lay veteran Stephen Quinn and Julie Roehm, who previously managed marketing of the Chrysler, Jeep and Dodge auto brands.

Mr. Fleming's most high-profile move came last fall when Wal-Mart, in an effort to promote its new fashion line Metro 7, for the first time advertised in the haute-couture pages of Vogue. The move seemed utterly incompatible with Wal-Mart's cost-conscious demographic and a heretofore less-than-cutting-edge clothing image. Smiley is nowhere to be found in the Vogue ads.

Smiley's demotion has been undertaken with little fanfare, but it is a big deal nonetheless. Wal-Mart employees have grown accustomed to the character, which Wal-Mart reintroduced each year with different themes: Zorro Smiley, Cowboy Smiley, even Ms. Smiley. Yet he had become a bit of a distraction because of his popularity with another group: Wal-Mart's critics. Among recent unauthorized parodies of Smiley, a marketing poster for an anti-Wal-Mart documentary last year featured a rampaging Smiley in a business suit.

While Mr. Fleming and others insist that Smiley might eventually regain a prominent role in the retailer's advertising and that he retains a strong presence in its print ads and store signs, some marketing experts speculate that the time has come for the icon to hang up his blue vest. "In my judgment, it has run its course," said Rajiv Lal, a professor of retailing at Harvard Business School.

Wal-Mart used Smiley regularly in his heyday to tout price rollbacks, the prolonged or permanent price reductions in featured products. He reflected the cornerstone of the Wal-Mart discount strategy. Instead of occasional short-term discounts, Wal-Mart always priced its products as cheaply as possible. When it found ways to cut costs on an item even more, it passed those cuts or rollbacks on to the customers, too.

The new Wal-Mart ad campaign, launched last summer for back-to-school, for the most part has shied away from focusing on price as it touts improved merchandise quality instead. "We own low prices," Mr. Fleming said, while recently touring Wal-Mart's new high-end store in Plano, Texas, that is supposed to lure more affluent customers.

"We are not just about price, but the broad value proposition for all customers," Mr. Fleming said. "We don't want to lose prices, but evolve the message of value -- in products, service and customer experience."

Whether Wal-Mart's new message is clicking with consumers isn't yet clear. Charles Grom, a retail analyst at J.P. Morgan, recently wrote about the retailer's anemic March same-store-sales increase of less than 1% at its supercenters and discount stores. He said he didn't think Wal-Mart's ad campaign was resonating with shoppers.

Some Wal-Mart watchers say the ads are too much, too soon and may unrealistically raise shoppers' expectations of what Wal-Mart stores have to offer. While the company is planning to remodel 1,800 stores in 18 months and is trying to roll out its new fashion line to more stores, all that is still a work in progress. If shoppers arrive expecting more than they get, they might be disappointed. Asked whether all the marketing changes are causing controversy inside Wal-Mart, Mr. Fleming quipped, "I just wear a bulletproof vest."

Smiley's recent benching reflects a history of ups and downs for corporate mascots prominent enough to become synonymous with their companies. Burger King Holdings Inc.'s fast-food chain Burger King had retired the burger king himself for several years until recently recoronating him in a series of quirky "Wake up with the king" breakfast ads. And McDonald's Corp.'s Ronald McDonald has seen his prominence in the burger chain's ad strategy ebb and flow through the decades.

The challenge for Wal-Mart won't be whether to retire Smiley or eventually reinstate him, some branding experts say. Rather, it will be overcoming the perception that decades of Wal-Mart advertising has cemented for shoppers -- that it is all about low prices.

For example, it took Target a decade to position itself as a low-cost yet chic retailer, and Wal-Mart will need a lengthy, consistent campaign as well to change its image, said Robert Passikoff, president of New York-based Brand Keys Inc. Wal-Mart is "doing all the right things," he says. "But they have a brand image and brand values that are so deeply entrenched that changing the direction is like trying to turn around the Queen Mary."

Wal-Mart Eases Benefits Rules For Part-Timers
By a Wall Street Journal Staff Reporter
April 18, 2006

BENTONVILLE, Ark. -- Wal-Mart Stores Inc. said it will halve the waiting period for part-time staff members' eligibility for health benefits to one year.

Until now, the employees have had to work for Wal-Mart for two years to qualify. The coverage also will extend to the employees' children. The company said the change will make more than 150,000 part-time associates eligible for initial or enhanced coverage during a special enrollment period in mid-May.

The retailer also said it plans to cut co-pays on generic medications for common conditions such as diabetes, hypertension, high cholesterol and infections to $3 from $10 and will offer 20% discounts on prescription drugs otherwise not covered.

Wal-Mart has been criticized for paying low wages and being stingy with health benefits, leading some workers to seek government aid.

Susan Chambers, a Wal-Mart vice president, said the version of the health plan that most employees are expected to sign up for would be available for $23 a month. Workers' children would be included for $15 more, whatever the size of the family. "Every Wal-Mart associate, both full- and part-time, will get coverage after no more than 12 months, no matter how many hours they've worked," she said.

The company also said it will provide a contribution of up to $1,200 and an additional match of up to $1,200 to staffers' health-savings accounts, and will provide a 10% staff discount on healthy foods in Wal-Mart stores and Sam's Clubs.

Sears Holdings Faces Holder Challenge In Sears Canada Buy
Dow Jones Newswires
April 17, 2006

Hawkeye Capital Management LLC, Knott Partners Management LLC and Pershing Square Capital Management L.P. have formed a group to oppose Sears Holdings Corp.'s (SHLD) "coercive efforts" to acquire the publicly owned shares of Sears Canada Inc. (SCC.T), Pershing said on Monday.

The group members, or funds controlled by them, own or control 8.24 million shares of Sears Canada representing 7.7% of the outstanding shares, and 25.7% of the shares not owned by Sears Holdings.

The shareholder group said it plans to take all appropriate legal action to halt the transaction so Sears Canada remains a public company or, alternatively, to ensure that the shareholders who want to sell their shares in Sears Canada are treated fairly.

Sears revving up its auto repair biz
Lampert is testing Auto Center concept in Kmart stores
By Sandra Jones – Crain’s Chicago Busine ss
April 17, 2006

Sears Holdings Corp. is testing its Sears Auto Centers format in Kmart stores — a move that, if rolled out companywide, could double the size of Sears' auto-repair business and make use of hundreds of vacant repair shops at Kmart stores around the nation.

Some of the first Sears Auto Centers are expected to go into Kmart stores in the Detroit area, according to people familiar with the plan. U.S. Auto Care's Big O Tires Inc. franchise had been operating as many as 13 outlets in Kmart stores in the Detroit area since March 2003.

The Big O franchise in Detroit went into Chapter 11 bankruptcy reorganization in October and shuttered the outlets in March after Kmart told the Bankruptcy Court that it had another tenant for the spaces. Kmart declined to name the potential tenant in court filings, but people familiar with the operation say Sears officials have been in Michigan looking to turn at least some of the former Big O locations into Sears Auto Centers.

Kmart has had a love-hate relationship with its auto repair business for decades, valuing the shopping traffic it brought to the store while customers waited for their cars to be serviced, but never quite figuring out how to run the business profitably. Kmart got out of the auto repair business in 2002, when Penske Auto Centers Inc. shut down its 563 Kmart outlets after the discounter entered Chapter 11.

Sears has a long history with automobile businesses — from selling cars in its catalog in the 1900s to selling DieHard batteries today. Auto repair traditionally has been a big profit contributor to the retailer, but the business has struggled lately. Annual sales for the more than 850 Sears Auto Centers are estimated between $1.5 billion and $1.8 billion.

"It's been a very important part of Sears' business for a long time and a very profitable part of the business," says George Whalin, CEO of Retail Management Consultants Inc., a San Marcos, Calif.-based retail consulting firm. "It's a natural extension. With their experience, it makes sense" to put Sears Auto Centers in Kmart stores.

Sears Chairman Edward Lampert, who engineered the combination of Sears and Kmart a year ago, knows the auto business well. Through his ESL Investments Inc. hedge fund, Mr. Lampert is the largest shareholder of two auto firms. He owns 29% of Florida-based AutoNation Inc., the largest U.S. auto retailer, and 22% of Tennessee-based AutoZone Inc., the nation's largest seller of auto parts. Mr. Lampert is also Sears' largest shareholder by far, with a 41% stake.

EMBRACE 'AMBIGUITY'

If Mr. Lampert has any notions of combining the auto businesses, he's not saying. But he made clear at Sears' annual shareholders meeting last week that he wants to test a wide range of ideas before making any decisions about the company's future. Sears employees and shareholders alike need to be comfortable with "ambiguity," he says. "The strategy is about, 'Let's try a lot of things and see what works,' " Mr. Lampert said at the meeting.

The Hoffman Estates-based retailer disclosed in its annual report filed last month with the Securities and Exchange Commission that it is testing the addition of Sears Auto Centers to Kmart stores.

A Sears spokesman wouldn't reveal locations or comment beyond the SEC filing.

RIVALRY INTENSIFIES

The move comes as competition in the auto repair business intensifies. Wal-Mart Stores Inc. operates Tire & Lube Express centers in about 1,700 of its 3,100 stores. And Home Depot Inc. is starting to sell auto supplies at 10 stores in Florida as a pilot project.

In case the Sears Auto Center test doesn't go well, Sears has an alternative: Auto-Lab Franchise Management Corp. of Michigan has agreements to open centers at Kmart stores in six states and is eager for more, says co-owner Bill Downs. Nine sites are slated for Illinois, including one at a Kmart in New Lenox that opened this year.

Allstate by the numbers

Here’s how The Allstate Corp. looks these days.
•Headquarters: Northbrook
•CEO: Edward Liddy
•2005 sales: $35 billion
•One-year sales growth: 4 percent
•2005 profit: $1.8 billion
•One-year net income growth:
-45 percent
•Employees: 39,000
•Agents/financial specialists: 13,600
•Businesses: Auto, home and life insurance along with retirement planning, annuities and mutuals.

Source: Allstate.com, Hoover’s

Risk has its rewards --
Allstate hits milestone on solid ground after long year
By Mike Comerford – Business Writer - Daily Herald – Suburban Chicago
April 16, 2006

Seventy five years of hurricanes, earthquakes and fender benders.

Seventy five years of selling financial safety nets, for cars, houses and lives.

And yet The Allstate Corp. began during a game of chance on a local Chicago train car, according to its own company literature.

“On a fall morning in 1930, as the 7:28 commuter train headed for downtown Chicago, a suggestion was made to Sears, Roebuck & Co. President and Board Chairman Gen. Robert E. Wood that Sears should start an auto insurance company and sell insurance by mail.”

Allstate CEO Edward Liddy stands alongside the first car insured by Allstate, a 1930 Studebaker, at the insurer’s Northbrook campus.

That pivotal suggestion was made during a card game and Allstate has been calculating the odds ever since.

Allstate took its name from a Chicago-based Sears catalog tire brand and company lore says an Aurora tool and dye worker was its first customer. Later, the first claimant was paid when he came in with a car door he said was broken-off in a theft.

Flash forward 75 years, Allstate’s sprawling Northbrook headquarters commands an insurance empire, the largest privately traded U.S. insurer.

However, 2005’s hurricane season rocked Allstate on its heels last year, causing the first quarterly loss in a decade and sparking outrage by some Gulf State homeowners insured for wind but not for floods.

Still, Allstate responded with charitable assistance and what seemed like legions of personnel. Much of the response was organized from its South Barrington catastrophe center.

Part of the territory

All the while, the losses keep piling up.

“This is the nature of our business,” said Edward Liddy, longtime chief executive officer at Allstate in an interview with the Daily Herald. “But we think we’re in substantially better shape in 2006 than in 2005.”

The second-largest U.S. insurer, behind Bloomington-based State Farm Mutual, Allstate is rolling out its storied history and reassuring customers and investors that it’s healthy on its 75th anniversary.

Allstate can take credit for several insurance industry milestones, such as customizing insurance rates to the individual car. Over the years, it advocated for air bags, seat belts and drivers tests.

In the marketing realm, its 1950 slogan “You’re In Good Hands With Allstate” is one of the longest lasting, most recognizable company slogans in the country.

Still, Allstate long seemed overshadowed by its parent, Sears. When Sears changed, so did Allstate.

In the 1980s, aiming to buffer itself from the cyclical nature of the retail marketplace, Sears separated its merchandise group from Allstate. After acquiring the Dean Witter Reynolds Organization Inc. and Coldwell Banker & Co., Sears added Allstate to its growing financial group.

But the world’s largest retailer at the time began closing stores and by 1993 was restructuring again, selling or spinning-off its financial companies.

Going public

The sale of 20 percent of Allstate’s stock in 1993 was the largest initial public offering in U.S. history. A couple years later, remaining Allstate shares went to Sears shareholders.

Many newly public companies struggle but Allstate had been operating since the 1930s and came out of the gate with record profits.

Then-CEO Jerry Choate and President Liddy could boast within a year that Allstate, with its $30 billion market capitalization, was bigger than Sears or Chrysler.

Nevertheless, the 1990s would prove perilous for the insurer.

There was still the bad publicity fall-out from the 1994 Northridge, Calif. earthquake. It was the largest insurance payout in history, costing Allstate $1.7 billion on 46,000 claims. But claimants said Allstate mishandled as many as 9,000 claims and Allstate agreed to set aside $60 million to cover potential damages.

At the time, Liddy said the company was so overwhelmed by the size of the disaster that it used outside contractors, who were the cause of the mishandled claims.

Then, faced with higher personnel costs than competitors, Allstate decided to make all its full-time Allstate agents independent contractors. The shake-out was a painful one for thousands of employees, many who didn’t make the transition.

At the time, insurers thought Internet and global operations would dominate the industry in a few years. But Allstate has “pulled back” from its ventures in Europe and Asia, Liddy said, and he acknowledges many people thought Internet insurance would be bigger by now.

A year to remember

In 2005, hurricanes Katrina, Rita, Ophelia, Dennis and Wilma handed Allstate its worst year for catastrophic losses. Net income fell 45 percent.

Nevertheless, even in one of its worst years it racked up $1.8 billion in profits.

Learning from the experience, the insurer is ratcheting up its reinsurance protection on the East Coast. It cutback insurance in some Gulf States. And the company has been using consumer credit histories to find customers least likely to file claims.

“We have some technology now to manage risk much better,” Liddy said.

This year the company expects to earn $2.35 to $2.50 a share before investment gains and losses.

“Catastrophes are part of the business,” said Stuart Quint, an analyst at Gartmore Global Investments. “What matters is whether they are still generating solid underwriting profit excluding the catastrophes.”

Of the 29 analysts listed by Bloomberg as Allstate stock analysts, a majority call it a “buy.”

More than just profitable, Allstate points to an unusually high number of best practices citations.

And the way Liddy sees it, Allstate has a stable management team, steady income flows and new technologies for managing through future disasters.

“I think we have another great 75 years ahead,” Liddy said. “When you have a company 75 years old and thriving, not just surviving, I don’t know how many companies can say that.”

In 2003, it stopped selling all guns in California, after the state found thousands of violations of gun laws -- including sales of guns to felons -- at Wal-Mart stores over the previous three years. Wal-Mart paid $14.5 million to settle a state lawsuit stemming from the violations.

Wal-Mart's latest decision disappointed gun advocates. "We hope that Wal-Mart wasn't influenced by the gun-control lobby or other liberal elitists," said Chris W. Cox, chief lobbyist at the National Rifle Association. "We've been told the decision would be made store by store, based on demand. The NRA will be watching closely to make sure they stay true to their word."

Separately, Wal-Mart said on Friday that its board has nominated Aida Alvarez, former administrator of the Small Business Administration, and James Cash Jr., retired professor at the Harvard University Business School, to its board. The company said directors Jose Villarreal, J. Paul Reason and John Opie won't stand for re-election at the company's June 2 annual meeting.

-- Kris Hudson contributed to this article.

Wal-Mart to Stop Selling Firearms in Some Stores
By Ann Zimmerman – Wall Street Journal
April 15, 2006

Wal-Mart Stores Inc., the biggest seller of firearms in the country, said it is discontinuing sales of guns in about 1,000 U.S. stores due to insufficient demand, part of an effort to boost sluggish sales by better matching store merchandise to individual neighborhoods.

The Bentonville, Ark., retailer wouldn't say which stores would stop selling guns and whether sales at those stores had fallen off recently or had always been substandard. The company said the move to stop selling guns at what amounts to about a third of its U.S. stores is part of Wal-Mart's larger effort to improve its "store of the community" program that tailors store products to neighborhood demand.

"If demand is not there for an item, we stop selling it," said Karen Burk, a Wal-Mart spokeswoman.

Wal-Mart declined to break out its gun sales. However, its much broader sporting goods and toys category, which includes firearms, was one of three merchandise categories whose percentage of Wal-Mart's total sales slipped last year.

Amid litigation against gun manufacturers and retailers in the 1990s, particularly in the aftermath of the Columbine school shooting, many retailers backed away from selling guns. Wal-Mart, which was founded by hunting enthusiast Sam Walton, continued selling rifles and shotguns, though it did cease handgun sales in 1993.

-- Kris Hudson contributed to this article.

Allstate Invites Chicago to Celebrate Its 75th Anniversary
Business Wire
April 13, 2006

NORTHBROOK, Ill. - Born from an idea over a game of cards on a commuter train rolling into Chicago, 75 years later, Allstate Insurance Company is still enjoying the ride.

Allstate turns 75 years old on Monday, April 17, 2006, and Mayor Richard M. Daley has officially declared it "Allstate Day" in Chicago. Originally housed in the first Sears Tower in Homan Square, Allstate is partnering with the City of Chicago to deliver a variety of Good Hands(R) experiences to Chicagoans.

Allstate will ensure that commuters are "in Good Hands" on its official birthday (April 17) when it covers fees for all of the City-metered parking spaces located in Chicago's Loop, bordered by Wabash Avenue on the east, Lake Street on the north, Wells Street on the west and Jackson Boulevard on the south. In addition, Allstate also will feed parking meters along Ontario Street, east of Michigan Avenue extending to Lake Michigan.

"Allstate is proud to call Chicagoland home. For decades, Allstate has been a leader in its industry, championing business innovations that ultimately benefit our customers. Likewise, Allstate has been active in social initiatives in the communities in which we live and work with the intention of helping improve the quality of life for people," said Allstate Chairman and CEO Edward M. Liddy. "We are proud of our history and look forward to continuing the tradition for many years to come with our talented employee and agency force."

As Chicago has grown and prospered, Allstate has supported civic and cultural efforts enriching local families and communities. Continuing this tradition, throughout the summer Allstate will partner with the Chicago Department of Cultural Affairs and Chicago Park District to present a lineup of activities, including:

-- Chicagoans will be steered to a new outdoor sculpture exhibit designed in collaboration with the Department of Cultural Affairs, "Artists and Automobiles," which features car relics transformed into a variety of impressive works of art. Showcased in Grant Park and Michigan Avenue, "Artists and Automobiles" will be parked in these prominent locations throughout the summer.

-- Car fanatics will brake at the Chicago Cultural Center this summer for "Chicago Car Culture," an exhibit that explores Chicago's contributions to automobile culture in America via a mix of history, artifacts, storytelling and art. Free and open to the public, "Chicago Car Culture" will be on display in the Chicago Cultural Center's Chicago Rooms June 9 through Aug. 31.

-- A throwback to drive-in movies, the Chicago Park District's popular "Movies in the Park" program will screen twice as many films at parks throughout the city this summer through Allstate's gift.

-- Allstate also will serve as a primary sponsor of more than 75 world-class events taking place at Chicago's Millennium Park this summer.

Celebrating its hometown, Allstate will continue its anniversary festivities in August when more than 2,500 top agents from across the country visit Chicago for Allstate's National Conference.

Chicago Roots

Sears adopted the Allstate name from a tire sold through its catalogs. Initially funded in 1931 with $700,000, it didn't take long for Allstate insurance to catch on. On May 17, 1931, William Lehnertz of Aurora, Ill., became the first Allstate policyholder. And, a few months later, Allstate paid its first claim when a customer holding a car door handle broken off in a theft attempt walked into Allstate's one-room Chicago office. A successful presence at the Chicago World's Fair in 1933 led Sears to place Allstate agents in Sears stores, where they'd become mainstays for decades. Ultimately, Sears took Allstate public in 1993, and the company became totally independent of Sears in 1995. At the time, the 1993 stock sale was the largest initial public offering in U.S. history.

A full-page ad created by Allstate's longtime ad agency of record, Leo Burnett, will appear in the Wall Street Journal and then other newspapers thereafter. The full-page anniversary ad that begins running Monday is full of info about Allstate's history and the many history-making moments in the company's 75 years. Among other things, the ad notes that Allstate was founded in 1931, when Gen. Robert E. Wood, the head of Sears Roebuck and Co. (Allstate's former parent), wanted to establish a unit that would help the then-burgeoning number of car owners cut through the red tape when their vehicles needed repairs.

The ad also explains how the company's "You're in Good Hands" tag came to be back in 1950, when the daughter of an Allstate sales manager was seriously ill. As his daughter was being wheeled into surgery, the man was reassured that the girl "was in good hands." The warmth and trust of that line, as the anniversary ad states, stuck with the father, and, along with the image of cupped hands, the phrase became the cornerstone of Allstate advertising.

Other historical highlights mentioned in the anniversary print ad include Allstate's aggressive push to make seat belts mandatory starting in 1968, the development of a national catastrophe team in 1996, and , most recently, the introduction this year of a safe driving bonus.

Also noted, for trivia buffs:

* The Allstate name came from a tire sold in a Sears catalog in the 1930s.

* William Lehnertz of Aurora became Allstate's first policy-holder on May 17, 1931.

Sears took Allstate public in 1993 and in 1995, Allstate was spun off and became totally independent of its former parent.

Wal-Mart CEO to Take Monthlong Vacation
By Marcus Kabel – Associated Press
April 13, 2006

Lee Scott will take an unusually long one-month vacation in May from his job as chief executive of Wal-Mart Stores Inc., his first break of that length since taking over the helm of the world's largest retailer in 2000, Wal-Mart said Thursday.

Scott, 57, will leave his two deputies in charge and remain in touch while he travels with his family and possibly goes fishing, spokeswoman Mona Williams said.

"Lee has a well-qualified team in place and that enables him to take a longer than usual vacation," Williams said in an e-mail to The Associated Press.

"He will stay in touch while he is away and return in time for the shareholders meeting (June 3)," Williams added.

Williams did not respond to an e-mailed question about whether Scott's long break was a sign that he may be considering leaving.

Scott's job has changed in the past year as he has had to spend more time defending Wal-Mart against increasingly organized attacks from unions and other critics of wages, benefits and business practices of the giant retailer.

His duties will be shared while he is gone by Vice Chairman Mike Duke, the head of Wal-Mart's international division, and Vice Chairman John Menzer, who runs the domestic stores division. Both are widely seen as potential future contenders for the CEO position.

The Bentonville, Ark.-based Wal-Mart promoted Duke and Menzer to vice chairman positions last year and effectively swapped their responsibilities for U.S. and international operations, a move seen as giving each man a better overall grasp of the organization.

Scott is a 25-year veteran of Wal-Mart who rose through the ranks of its formidable logistics operations.

In January 2000, he replaced President and CEO David Glass and became a member of the Wal-Mart Board of Directors in 2001.

Cart Blanche?
The Megamarket's Savings Don't Come Cheap
By Bob Thompson - Staff Writer - Washington Post
April 13, 2006

It's just a big old sack of dog food, for crying out loud, but Charles Fishman can hardly restrain himself: "Fifty pounds for $13.82! That's amazing!" the author of "The Wal-Mart Effect" bursts out. "That's less than 30 cents a pound!"

You'd think the guy would be a bit jaded by now. Fishman has schlepped through more than a hundred Wal-Marts in 23 states, trying to chart the nearly unfathomable influence of the retail behemoth Americans have learned to love, hate or take for granted. But he's never been